CLE Course Materials and Notepad©

ESTATE PLANNING AND WILL DRAFTING 2016

Wednesday, April 6, 2016 Melville, L.I.

Thursday, April 7, 2016 Albany

Wednesday, April 20, 2016 New York City & Webcast

Wednesday, April 20, 2016 Rochester

CLE Course Materials and NotePad©

Complete course materials distributed in electronic format online in advance of the program.

Co-sponsored by the Trusts and Estates Law Section and the Committee on Continuing Legal Education of the New York State Bar Association This program is offered for education purposes. The views and opinions of the faculty expressed during this program are those of the presenters and authors of the materials. Further, the statements made by the faculty during this program do not constitute legal advice.

Q. What is LAP? A. The Lawyer Assistance Program is a program of the New York State Bar Association established to help attorneys, judges, and law students in New York State (NYSBA members and non-members) who are affected by alcoholism, drug abuse, gambling, depression, other mental health issues, or debilitating stress. Q. What services does LAP provide? A. Services are free and include: • Early identification of impairment • Intervention and motivation to seek help • Assessment, evaluation and development of an appropriate treatment plan • Referral to community resources, self-help groups, inpatient treatment, outpatient counseling, and rehabilitation services • Referral to a trained peer assistant – attorneys who have faced their own difficulties and volunteer to assist a struggling colleague by providing support, understanding, guidance, and good listening • Information and consultation for those (family, firm, and judges) concerned about an attorney • Training programs on recognizing, preventing, and dealing with addiction, stress, depression, and other mental health issues

Q. Are LAP services confidential? A. Absolutely, this wouldn’t work any other way. In fact your confidentiality is guaranteed and protected under Section 499 of the Judiciary Law. Confidentiality is the hallmark of the program and the reason it has remained viable for almost 20 years.

Judiciary Law Section 499 Lawyer Assistance Committees Chapter 327 of the Laws of 1993 Confidential information privileged. The confidential relations and communications between a member or authorized agent of a lawyer assistance committee sponsored by a state or local bar association and any person, firm or corporation communicating with such a committee, its members or authorized agents shall be deemed to be privileged on the same basis as those provided by law between attorney and client. Such privileges may be waived only by the person, firm or corporation who has furnished information to the committee.

Q. How do I access LAP services? A. LAP services are accessed voluntarily by calling 800.255.0569 or connecting to our website www.nysba.org/lap Q. What can I expect when I contact LAP? A. You can expect to speak to a Lawyer Assistance professional who has extensive experience with the issues and with the lawyer population. You can expect the undivided attention you deserve to share what’s on your mind and to explore options for addressing your concerns. You will receive referrals, suggestions, and support. The LAP professional will ask your permission to check in with you in the weeks following your initial call to the LAP office. Q. Can I expect resolution of my problem? A. The LAP instills hope through the peer assistant volunteers, many of whom have triumphed over their own significant personal problems. Also there is evidence that appropriate treatment and support is effective in most cases of mental health problems. For example, a combination of medication and therapy effectively treats depression in 85% of the cases. Personal Inventory

Personal problems such as alcoholism, substance abuse, depression and stress affect one’s ability to practice law. Take time to review the following questions and consider whether you or a colleague would benefit from the available Lawyer Assistance Program services. If you answer “yes” to any of these questions, you may need help.

1. Are my associates, clients or family saying that my behavior has changed or that I don’t seem myself? 2. Is it difficult for me to maintain a routine and stay on top of responsibilities? 3. Have I experienced memory problems or an inability to concentrate? 4. Am I having difficulty managing emotions such as anger and sadness? 5. Have I missed appointments or appearances or failed to return phone calls? Am I keeping up with correspondence? 6. Have my sleeping and eating habits changed? 7. Am I experiencing a pattern of relationship problems with significant people in my life (spouse/parent, children, partners/associates)? 8. Does my family have a history of alcoholism, substance abuse or depression? 9. Do I drink or take drugs to deal with my problems? 10. In the last few months, have I had more drinks or drugs than I intended, or felt that I should cut back or quit, but could not? 11. Is gambling making me careless of my financial responsibilities? 12. Do I feel so stressed, burned out and depressed that I have thoughts of suicide?

There Is Hope

CONTACT LAP TODAY FOR FREE CONFIDENTIAL ASSISTANCE AND SUPPORT The sooner the better! Patricia Spataro, LAP Director 1.800.255.0569 PROGRAM AGENDA

8:30‐9:00 a.m. Registration (outside meeting room)

9:00‐10:00 a.m. I. Estate Planning Overview and Basic Will Drafting A. Checklists and Worksheets B. Fundamentals C. Specific Bequests D. General Bequests E. Residuary Bequests F. Survivorship Requirements G. No Contest Clauses H. Administrative Provisions I. Will Execution Ceremony J. Drafting Pointers and Sample Wills

10:00‐10:50 II. Will Drafting Overview A. Marital Dispositions‐ Outright Distributions versus Marital Deduction Trusts B. Spousal Right of Election C. Credit Shelter, Generation‐Skipping and Disclaimer Trusts D. Trustee Appointments and Succession E. Drafting Pointers and Sample Language

10:50 – 11:00 – Coffee Break

11:00‐12:00 p.m. III. Planning With Revocable Trusts A. Particular Trust Provisions: Lifetime v. Distribution At Death B. Pour Over Wills C. Trustee Appointments and Succession D. Trust Protectors E. Funding F. Execution G. Drafting Pointers and Sample Language

12:00‐1:30 LUNCH (on your own)

1:30‐2:15 IV. Lifetime Giving, Minors and Incapacitated Beneficiaries A. Inter Vivos Gifts B. Trusts for Young Beneficiaries and Uniform Transfers to Minors Act C. Guardians of the Person and/or Property D. Trusts for Spendthrifts E. Testamentary Supplemental Needs Trusts F. Funding Testamentary Trusts by Beneficiary Designation G. Drafting Pointers and Sample Language 2:15‐3:00 V. Tax Implications and Drafting A. Federal Estate and Gift Tax: An Overview 1. Property Includable in Decedent’s Gross Estate 2. Estate Tax Deductions 3. Estate Tax Credits 4. Unified Credit Against Gift and Estate Taxes B. New York Estate Tax and the Financial Cliff C. Generation‐Skipping Transfer Tax D. Income Taxation: Income Shifting Techniques E. Drafting Tax Allocation Provisions 3:00‐3:15 Coffee/Soft Drink Break 3:15‐3:45 VI. Digital Assets 3:45 – 4:10 VII. Charitable Estate Planning A. Income and Estate Tax Considerations B. Contemplating Attorney General’s Office PostMortem

4:10 – 5:00 VIII. Ethical Considerations A. Goals and Responsibilities of an Estate Planner B. Conflicts of Interest and Dual Representation C. Legal Fees D. Putnam/Satterlee/Weinstock Considerations F. Attorney‐Fiduciary Issues under SCPA 2307(a) and Rule 207.16(e) G. Drafting Retainer Agreements

5:00 p.m. Adjournment PROGRAM FACULTY

Overall Planning Chairs and Moderators

Sylvia E. Di Pietro, Esq. Patricia J. Shevy, Esq. Law Office of Sylvia E. Di Pietro, Esq., LLC The Shevy Law Firm, LLC New York City Albany

Program Faculty

Local Panels

Melville, L.I.: Eric W. Penzer, Esq., Farrell Fritz P.C., Uniondale, L.I. (Chair and Moderator) * Susan Mary Bacigalupo, Esq., McCoyd, Parkas & Ronan LLP, Garden City * Jill Choate Beier, Esq., Marymount College, New York City * Keith D. Black, Esq., Law Office of Keith D. Black, P.C., Massapequa Park * John G. Farinacci, Esq., Ruskin Moscou Faltischek PC, Uniondale, L.I. * Joseph T. La Ferlita, Esq., Farrell Fritz P.C., Uniondale, L.I. * Jordan S. Linn, Esq., Farrell Fritz PC, Uniondale, L.I. * Wendy H. Sheinberg, Esq., Davidow Davidow Siegel & Stern LLP, Islandia * Michael J. Sullivan, Esq., Novick & Associates, Huntington.

Albany Session: Cristine Cioffi, Esq., Cioffi Slezak Wildgrube P.C., Niskayuna (Co‐Chair and Co‐ Moderator) * Deborah S. Kearns, Esq., Chief Clerk, Albany County Surrogate’s Court, Albany (Co‐Chair and Co‐Moderator) * Jennifer Lea Allinson, Esq., Lavelle & Finn, LLP, Latham * Jennifer M. Boll, Esq., Hodgson Russ LLP, Albany * JulieAnn Calareso, Esq., Burke & Casserly, P.C., Albany * Richard D. Cirincione, Esq., McNamee, Lochner, Titus & Williams, P.C., Albany * Deborah S. Kearns, Esq., Chief Clerk, Albany County Surrogate’s Court, Albany * Cassandra Allyssa Partyka, Esq., Cioffi Slezak & Wildgrube PC, Niskayuna * Tara Anne Pleat, Esq., Wilcenski & Pleat PLLC, Clifton Park * Patricia J. Shevy, Esq., The Shevy Law Firm, LLC, Albany.

New York City Session: Ian William MacLean, Esq., MacLean Law Firm, P.C., New York City (Chair and Moderator) * (Faculty to be announced.)

Rochester Session: Thomas J. D'Antonio, Esq., Nixon Peabody LLP, Rochester * Karin Sloan DeLaney, Esq., Sloan DeLaney, P.C., Baldwinsville * Marcy Robinson Dembs, Esq., Barclay Damon, LLP, Syracuse * R. Thompson Gilman, Esq., Woods Oviatt Gilman LLP, Rochester * Albert B. Kukol, Esq., Levene, Gouldin & Thompson, LLP, Vestal * Jason P. Livingston, Esq., Pullano & Farrow, Rochester * Rachelle Marie Nuhfer, Esq., Lacy Katzen LLP, Rochester *Anthony T. Selvaggio, Esq., The Cicero Law Firm LLP, Rochester.

TABLE OF CONTENTS

ESTATE PLANNING OVERVIEW ...... 001 by James N. Seeley, Esq.

BASICS OF WILL DRAFTING ...... 027 by Patricia J. Shevy, Esq.

DRAFTING WILL PROVISIONS ...... 077 by Michael E. O’Connor, Esq.

SAMPLE OF A REVOCABLE TRUST ...... 113 by Karin Sloan DeLaney, Esq.

INTERVIVOS GIFTS ...... 129 by Anne C. Bederka, Esq. and Joanne Butler, Esq.

FALL 2016 TAX LAW UPDATE ...... 159 by Merrie Jeanne Webel, Esq.

THE NEW YORK STATE ESTATE TAX ON ESTATES OF NON‐RESIDENT DECEDENTS ‐‐ EVOLVING FROM ONFISCATORY AND UNCONSTITUTIONAL TO ALMOST REASONABLE AND RATIONAL ...... 241 by Edward A. McCoyd and Susan M. Bacigalupo, Esq.

THE NEW NEW YORK STATE ESTATE TAX REGIME, A TRAP FOR THE UNWARY PROPOSED WILL LANGUAGE TO SAVE ESTATE TAXES AND OBTAIN DIRECT PECUNIARY BENEFIT FOR BENEFICIARIES (SANTA CLAUSE) ...... 247 by Paul S. Forster, Esq. and Laurence Keiser, Esq.

PLANNING FOR DIGITAL ASSETS ...... 257 by Jill Choate Beier, Esq.

LIFETIME GIFTS AND TRUSTS FOR MINORS ...... 301 by Susan Porter, Esq. and Magdalen Gaynor, Esq.

THE 1997 AMENDMENTS TO THE EPTL REGARDING LIFETIME TRUSTS: A TWENTY‐YEAR LOOK ...... 321 by Gerald I. Carp, Esq. and Benjamin A. Rosen, Esq.

IN A TRUSTS AND ESTATES PRACTICE ...... 363 by Victoria L. D'Angelo, Esq.

FACULTY BIOGRAPHIES ...... 379

ESTATE PLANNING OVERVIEW

JAMES N. SEELEY, Esq.

Bond, Schoeneck & King, PLLC Syracuse

§ ESTATE PLANNING AND WILL DRAFTING, 2015 REVISION [1.0] I. INTRODUCTION Estate planning offers a diverse, challenging and sophisticated practice for attorneys in the largest ur- ban settings to the smallest rural communities. Good estate planning requires the technical skills of a tax attorney; a strong understanding of business, real property and decedents’ estates law; and the sensitivity and caring of a personal adviser. Estate planning is much more than mere will drafting—it is a well-recognized specialty that is a prominent part of the legal profession.

A review of this book’s table of contents confirms the breadth of estate planning. Each segment of estate planning has its own set of complex rules and considerations, which may lead an attorney to focus too much on one key aspect rather than seeing the “big picture.” However, because no one part can be viewed in a vacuum, the attorney must approach estate planning holistically. For example, an attorney cannot consider

• the will without reviewing nontestamentary dispositions, including retirement accounts;

• the insurance trust without reviewing the overall estate tax plan; and

• the plan for the management of property at death without reviewing the plan for the management of property during life in the event of a disability.

Finally, the practitioner must always remember that estate planning involves human beings. An attorney who views the estate-planning process as a technical exercise will limit his or her effectiveness.

[1.1] II. PRINCIPLES OF ESTATE PLANNING [1.2] A. Everyone Has an Estate Plan

Everyone has an estate plan. If one owns an interest in property, he or she has an estate plan. If property is held in an individual’s name and that person dies without a will, probate property (i.e., property that would not pass by operation of law if a will existed) is disposed of by the law of intestacy. Nonprobate property passes by operation of law. Thus, by doing nothing, the person has directed how the property will pass. The only time a decedent’s property will escheat to the state is when there are no distributees under the intestacy statute, but even that is an estate plan.

[1.3] B. An Unplanned Estate Usually Leads to Unintended Results

The distribution of estate assets by intestacy will rarely accord with the client’s wishes. For example, if the intestate decedent is survived by a spouse and issue, $50,000 plus one-half of the residue of the estate will pass to the surviving spouse, with the remainder going to the decedent’s issue.1 Such a disposition is rarely desired.

Intestacy can often have other unintended results. For example, an intestate decedent has forfeited the ability to (1) determine who will administer the estate,2 (2) direct that his or her personal representative

1 N.Y. Estates, Powers & Trusts Law 4-1.1(a)(1) (EPTL).

2 N.Y. Surrogate’s Court Procedure Act 1001 (SCPA).

1-2 ESTATE PLANNING OVERVIEW § forgo posting a surety bond,3 (3) hold assets in trust for a minor or disabled distributee and (4) reduce estate taxes through estate planning.4

[1.4] C. An Estate Plan Is Only as Good as the Information on Which It Is Based

An attorney cannot draft a responsible and effective estate plan without fully understanding the client’s family structure, assets and wishes concerning disposition. Perhaps the error estate planners make most frequently is failing to consider whether the disposition of nonprobate property is consistent with the will the attorney has drafted. All too often, attorneys fail to ask about the existence of nonprobate property or fail to determine how ownership of that property will pass at death.

[1.5] D. Every Client and Every Estate Plan Is Unique

Another frequent mistake by estate planners is that they attempt to fit every client’s situation into fungi- ble, ready-made instruments. Not every client wishes to avoid probate, nor is every wealthy client’s priority saving taxes. Accordingly, the practitioner must listen carefully to the client to design a plan that most effectively meets that client’s unique needs and desires.

[1.6] E. Failing to Plan Is Planning to Fail—Cover All Contingencies

Contingency planning is an integral part of estate planning. Counsel must discuss with the client any number of unlikely yet possible events and address them in the dispositive documents. (For example, a beneficiary may predecease the testator.)

[1.7] F. Tax Savings Is Just One of Many Goals

Although minimizing taxes is an important and typical goal, it is only one of many goals. Although many estate tax strategies can save taxes, they may substantially alter the beneficiaries’ ownership and enjoyment of the client’s assets. Thus, practitioners must educate their clients with respect to the nontax impact of their tax decisions. As a result, the client may wish to pay a little more tax in order to obtain a desired disposition or continued retention of control over the client’s assets.

[1.8] G. Plan Administration Should Be Simple

The attorney must help the client create a plan that will be relatively easy and efficient to administer. If the administration will be excessively complex, the problem must be corrected—immediately.

[1.9] H. What the Client Wants May Not Be the Best Plan

The attorney must continually bear in mind that he or she is dealing with human beings who, through estate planning, are addressing their deepest concerns. In such circumstances, a client’s emotions can run high and, consequently, cloud his or her judgment. The attorney can help by drawing on personal experience and injecting a healthy dose of skepticism when considering the client’s wishes.

3 SCPA 805.

4 Failing to make an estate plan is not synonymous with avoiding probate. Planning to avoid probate through the use of a revocable trust or the disposition of assets by operation of law is an effective strategy for many individuals, but it requires very specific, careful planning to implement properly. See Chapter 6, “Revocable Trusts.”

1-3 § ESTATE PLANNING AND WILL DRAFTING, 2015 REVISION For example, is the client communicating what he or she really wants? Can an 18-year-old be trusted to receive a $100,000 outright disposition? Does a $20,000 gift really need to be held in trust until the beneficiary turns 60? Is the plan one the beneficiaries will respect, or will it generate unnecessary resentment? The attorney must respect the client’s wishes but must also question a client’s seemingly imprudent judgment. An attorney is an adviser, not merely a client’s scrivener.

[1.10] III. PROPERTY OWNERSHIP AND PASSAGE The primary focus of estate planning is directing the passage of title to property. Thus, the practitioner must understand the nature of the client’s property, the manner in which such property is held and the laws governing its ownership and transferability.

[1.11] A. Probate Property

[1.12] 1. Property Owned in Fee Simple

Property owned in fee simple is usually the easiest property to deal with when making an estate plan because no one else owns any portion of the legal title to it. The attorney must be aware, however, of any contractual restrictions on ownership or disposition, particularly in the case of real estate or business interests. Counsel should ask the client whether a buy-sell or similar agreement exists and review the abstract for restrictions on conveyance.

[1.13] 2. Tenancy in Common

A deceased tenant-in-common’s undivided interest is probate property subject to disposition under the will, or via intestacy if no will has been validly executed. Just because a client states that a property is “in both names,” counsel should not assume that such ownership is a joint tenancy with right of survivorship.5 Moreover, if the client desires disposition of an interest in common to someone other than the surviving co-tenant, the practitioner should advise the client to consider the ability of the new owners to share their ownership amicably.

[1.14] B. Nonprobate Property

[1.15] 1. Joint Tenancy

Joint tenancy is the equal co-ownership of property among two or more persons, each having the automatic right to receive a proportionate ownership of a decedent’s interest immediately upon the decedent’s death. This right of survivorship, more than any other characteristic, is what distinguishes joint ownership.

Joint ownership can often be an effective means of allowing property to pass without subjecting it to the cost and delay of the probate process. However, joint ownership also enables each joint owner to exercise full ownership rights, which may have unintended consequences. For example, a joint owner of a bank account may withdraw up to 100% of the funds from the account without the other owner’s permission. Likewise, a joint tenant in real estate can convey his or her interest even absent another owner’s consent, thereby creating a tenancy in common with a third party. Additionally, a joint tenant in real estate has shared liabilities, i.e., real estate taxes and capital maintenance, which may not be practical or intended in all situations.

The presumption that ownership of a decedent joint tenant’s interest in a bank account passes to the surviving joint tenant at death is rebuttable when

5 See infra § 1.15.

1-4 ESTATE PLANNING OVERVIEW § • the joint ownership is premised on fraud, undue influence or lack of capacity;6 or

• a joint bank account is created as a matter of convenience without the intention of conferring a beneficial interest on the other party.7

Thus, the planner should be alert to joint accounts held by an elderly or disabled client. If the account is intended as a “convenience account,” the planner should ensure such arrangement is documented during the client’s lifetime in order to avoid needless and costly litigation later on.

[1.16] 2. Tenancy by the Entirety

A disposition of property to a husband and wife creates a tenancy by the entirety, giving each a joint interest with a right of survivorship as well, unless another form of ownership is specifically stated.8 Unlike with a joint tenancy, one spouse acting alone cannot sever a tenancy by the entirety. This type of ownership can offer the strongest form of creditor protection in many instances.

[1.17] 3. Totten Trusts

A Totten trust is a bank account titled in the name of the depositor “in trust for” a beneficiary.9 The depositor is the exclusive owner of the account during his or her lifetime. Ownership of the account automatically vests in the beneficiary at the depositor’s death. Clients frequently use Totten trusts to set aside funds for beneficiaries who should not have immediate control of the funds, such as young grandchildren.

The only way a Totten trust can be revoked is by the depositor completely withdrawing the funds during his or her lifetime or by a provision in the depositor’s will. To qualify for revocation by will, the account “must be described in the will as being in trust for a named beneficiary in a named financial institution.”10

[1.18] 4. Life Insurance

Life insurance warrants special attention because it can be the most valuable asset in many estates. A life insurance policy is a contract between the owner (usually the insured) and the life insurance company. The contract governs the disposition of the death benefit.

Invariably, the policy will mandate that the company’s own beneficiary designation form be completed and filed with the company before a beneficiary designation will be valid. This requirement has important implications for the practitioner. For example, a designation prepared by an attorney on the attorney’s own form and mailed to the company typically will not be effective, nor will a designation form held in the client’s file but not delivered to the company. Moreover, the designation of a beneficiary in an in-

6 See N.Y. Banking Law § 675(b).

7 In re Reuben, 186 A.D.2d 1020, 590 N.Y.S.2d 824 (4th Dep’t 1992); Brezinski v. Brezinski, 94 A.D.2d 969, 463 N.Y.S.2d 975 (4th Dep’t 1983); In re Estate of Sabatino, 66 A.D.2d 937, 411 N.Y.S.2d 439 (3d Dep’t 1978).

8 EPTL 6-2.2(b).

9 Totten trusts are governed by EPTL 7-5.1–7-5.8; see also In re Totten, 179 N.Y. 112 (1904).

10 EPTL 7-5.2(2); see also In re Estate of Silberkasten, 102 Misc. 2d 227, 423 N.Y.S.2d 141 (Sur. Ct., Kings Co. 1979).

1-5 § ESTATE PLANNING AND WILL DRAFTING, 2015 REVISION sured’s will does not effectively dispose of the death benefit unless the insured’s estate is the beneficiary designated in the life insurance policy.

Payment of life insurance to an insured’s estate is not a recommended practice.

Insurance proceeds paid directly to a designated beneficiary pass free of the insured’s debts. However, proceeds paid to the insured’s estate become probate property subject to the estate’s debts. It is often lo- gistically easier to name the insured’s estate as beneficiary and distribute proceeds through the will, but the attorney should refrain from doing so unless the client is fully advised that the proceeds will be subject to creditors’ claims and is willing to bear that risk. It is much safer to designate a specific beneficiary—for example, “the trustee of the Trust for my children created by Article 3 of my probated last will and testament.”11

[1.19] 5. Retirement Plan Benefits

Retirement plan death benefits are subject to the same concerns discussed above relative to life insurance. These plans merit special consideration in the crafting of an estate plan because the income tax consequences of a particular designation can be very complex if the plan is “qualified” under Internal Reve- nue Code § 401 or 403 (I.R.C.). If a plan is so qualified, contributions to the plan are not taxed to the employee until distributed to him or her.12

Ordinarily, it is not wise to designate the owner’s “estate” as beneficiary even if that could simplify the estate administration. Naming the estate as beneficiary will cause a loss of the potentially very beneficial deferral of income tax available if an individual or qualified trust is named. Also, naming the estate as beneficiary could result in the loss of creditor protection granted retirement plans.

[1.20] IV. INITIAL CLIENT CONFERENCE— INFORMATION GATHERING Gaining the client’s trust is an important aspect of the initial client conference, which may seem difficult given the large amount of factual information that must be obtained in order to design an effective estate plan. The two goals are not mutually exclusive, however, and in fact can be complementary if the attorney remains sensitive to the client’s needs, desires and emotional state.

The attorney will need detailed information concerning the client’s family, finances and dispositive goals. Each of these is discussed below.

[1.21] A. Family Information

Counsel should prepare a complete family tree at the initial client conference to facilitate his or her understanding of the client’s dispositive scheme. When the will is eventually probated, a family tree developed while the client is still alive also can help in identifying and locating distributees, particularly those who otherwise would be hard to find. Finally, this exercise will help the attorney to determine whether a revocable trust is warranted if, for example, (1) distributee information cannot be obtained; (2) the client insists upon not involving the distributees in the probate of her will; or (3) the client does not want her testamentary dispositions to be made public record.

Both the client and counsel should devote special attention to the quality of the relationship between those who will play significant roles in the plan, such as executors and trustees. Similarly, counsel should

11 See EPTL 13-3.3.

12 I.R.C. § 402.

1-6 ESTATE PLANNING OVERVIEW § try to ascertain whether any of the beneficiaries exhibit characteristics that might warrant trusts rather than outright dispositions, such as youth, disability or irresponsibility with regard to spending habits.

Lastly, the attorney must determine the citizenship of a client and his or her spouse. Obviously, a client’s citizenship will have a significant impact on his or her planning. Also, the Internal Revenue Code contains highly technical provisions governing dispositions to noncitizen spouses who intend to qualify for the estate tax marital deduction.13

[1.22] B. Financial Information

Complete, accurate financial information is needed to ensure the economic result intended by the client and to plan effectively for estate and income taxes. A questionnaire can greatly reduce potential over- sights,14 particularly if it is sent to the client before the initial conference. Clients are frequently unsure of the totality of their assets and require the formal exercise of completing the questionnaire in order to ensure the completeness of the information.

Counsel should always review the questionnaire in detail with the client at the initial conference, paying particular attention to confirming the form of ownership of the assets. If the client equivocates when asked to identify the designated beneficiary or to indicate whether the asset is particularly significant to the plan, counsel should request copies of the primary documents.

Further, counsel should explore with the client the existence of any assets the client may not fully understand, such as trusts, retirement plans, powers of appointment and so on. Determining whether the client may receive a significant inheritance is likewise important.

In most cases, approximate values will suffice. Planning with reasonable, round numbers is usually adequate. The valuation of a business, however, can be troublesome. If a business interest is significant to the estate plan, counsel should obtain financial statements from the last five years, keeping in mind that book value does not always accurately reflect the fair market value of the business. In fact, book value often bears little relation to the fair market value of the corporation’s assets. The fair market value of an operating business is determined more often by its ability to generate income than by the value of its underlying assets.

If the value of a business materially affects estate tax planning or if a good understanding of value is needed in order to complete the dispositive planning, counsel should retain the services of a professional appraiser. The certainty a good appraisal can bring to the planning process will almost always be worth the appraiser’s fee.

[1.23] C. Dispositive Goals

Counsel should begin exploring the client’s dispositive goals without regard to estate taxes, form of ownership or similar impediments to the implementation of the plan. The attorney can design an effective plan only if he or she determines the client’s ultimate wishes.

When the initial design of the plan is complete, counsel should then review the client’s other goals, including tax minimization, and the client’s financial questionnaire, and examine how each asset is incorpo-

13 See I.R.C. § 2056A.

14 Two sample questionnaires are included as Appendix A and Appendix B. The simple questionnaire in Appendix B is more efficient for most modest estates; the more comprehensive questionnaire in Appendix A is warranted for larger estates. A fact-gathering checklist is set forth in Appendix C.

1-7 § ESTATE PLANNING AND WILL DRAFTING, 2015 REVISION rated into the overall plan. Counsel’s final task is to determine whether the plan as finally designed is consistent with all the client’s originally identified goals and to modify it where necessary.

1-8

APPENDIX A

Confidential Information Form of

Date:

PERSONAL INFORMATION

Name Date of Birth Address SSN

Husband

Wife

Children

Parents

Clrcnls' ~Lfurila! Status (c{reck proper oneJ:

MARRIED SINGLE WIDOWED DIVORCED SCPARATED (If divorced or separated at any time, please send in copy of any divorce decree and separation agreement) O ccupation: Position Employer

HUSBAND _ WIFE

Existing Wills Date Location HUSBAND WIDE

(please send in a copy of each will)

1-13 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

ASSETS

Insert your estimate of the approximate cuacnt value. List each type of asset individually owned under the husband or wife columns, jointly owned property (registered in the name of both spouszs) under the joint column, and if jointly owned with someone other than your spouse, insert name and relationship of that person. Do not itemize bank accounts or list securities individually. Merely insert total value of each type of asset according to its current registration as indicated below, and place the valuation in the column of the registered owner. Indicate the beneficiary, if any, for any of the security or bank account registrations below.

Husband Wife Joint $ $ $

A. Rcat Property (type and location—i.e., residential, business, unimproved)

B. Stocks &Bonds* Individual or Joint

In Trust for

Custodian for

Payable on Denth to

'List total value of thz listed stocks and the listed bonds separately and also list separately any ownership in a family or closely owned coloration at the book value of the shares. C. Bank Accounts, Mortgages, Monies Owed to You Individual or Joint

In Trust for

Custodian for

1-14 APPENDIX A

Payable on Death to

D. Miscellaneous

Automobiles Furnishings Antiques Other Personal Belongings

Other Assets

E. Life Insurance** (IF married, list insurance on husband, wife and children) Name and address of your agent, if any

ame of N Face Name of Type of Owner of Primary Cont. Co. & Amt. Insured Policy Policy Benef. Senef. Policy No.

** If you have a current inventory of your policies, send it in instead of wmpleting this block. If you are uncertain as to the i~foanation requested and have no inventory, send in the policies themretves. Aiso indicate any policy loans under the tinbility section below. Under Type of Policy, we want to know if the policy is whole life, term, group, association, etc.

F. Retirement Benefits*** Plan Name

Annual Contribution By you By employer

Death Benefi[ Insurance Investment Fund

Beneficiary (primary and contingent)

Mode of Payment

*'* IP more than one plan, give same inConnation Eor each. If uncertain of information, give mme of person familiar with your plan and send in any booklet explaining company benefits. For mode of payment, indicate whether payable in lump sum form or type of annuity.

1-15 ESTATE__ PLANNING AND WILL DRAFTING,2015 REVISION

G. Interests in Trust

Do you or your spouse have any interests in trusts set up either by yourselves or others? This could include a right to receive income payments from a trust, to receive an amount on the death of another, your right to designate who shall receive the trust property upon [he happening of a future event such as your death, and any trust you have set up that you can or cannot revoke, whether for the benefit of yourself or another. If so, f~irnish the following for each trust:

Name of Trust and Trustee

Person WUo Crea[ed Trus[ Date Created

State in which Created Current Value

Atso fiirnish us a copy of the trust instrument and your most recent statement of the assets.

LIABILITIES

Husband Wife Joint $ $ $ Home Mortgage

Insurance Loans

Other Borrowings"*~`~`

***'" List to whom owed, amount and teems, and any collateral pledged. i . Have you executed a Power of Attorney? If so, please provide a copy. EIUSBAND Yes No W[PE Yes No

2. I~Iave you executed a Health Care Proxy or Living Will? If so, please provide a copy. HUSBAND Yes No WIFE Yes _ No

3. Do you wish to be an organ and tissue donor? HUSBAND Yes No WIFE Yes No

(a) If yes, have you signed an organ donor card or indicated on your driver's 1 icense you intend to be an organ donor? HUSBAND Yes No WIFE Yes No

(b) Have you told your family about your intention to be an organ donor? HUSBAND Yes No WIFE Yes No

1-16 APPENDIX A

CONTINUATION OF INFORMATION

1-17 APPENDIX B APPENDIX B

Asset Form

NAMES:

ADDRESS:

DATE:

Joint Husband Wife

Assets:

Residences

Other Real Estate

Stocks

Bonds

Cash

Mortgages

Insurance (Pace)

Tangibles

Retirement Plans (Death Benefit)

Trust Interests

Others

Totals

Debts:

Mortgages

Others

Totals

meeting. categories are sufficicnc Any necessary detail can be developed at the * For purposes of this form, ballpark values for the gc~eral asset

1-19 APPENDIX C

APPENDIX C

Estate Planning Checklists I. OBJECTIVES CHECKLIST To determine client's main objectives for estate plan and the relative importance objectives. of each of these

A. abjectives for Client and Client's Spouse I . Personal care during disability or old age

2. Managing assets during disability or old age

3. Securing advice for current management of assets 4. Minimizing current income taxes

5. Arranging for guardians for any of the client's minor children 6. Arranging for disposition or continued management of family business after disability, death retirement or

7 . Changing residence to anotherjurisdiction—double domicile problems 8. Making gifts to family members

9. Establishing asset management for children

10. Providing financial care for client's parents

1 1. Insuring that family assets remain in family 12. Making gifts to charities

13. Purchasing additional life insurance

14. Purchasing insurance to supplement income in case of disability

I5. Concern for health care decisions if b~avely ill 16. Concern for funeral arrangements and donation of bodily organs 17. Minimizing estate and inheritance taxes and administration expenses at death B. Objectives under Client's Will 1. Selection of executor, trustee and successor fiduciaries

2. Disposition of valued personal effects to spouse 3. Disposition of valued personal effects to children, other family members or friends

1-21 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

4. Authorizing spouse to make gifts to other family members during spouse's lifetime

5. Authorizing spouse to make gifts to other family members under spouse's will

6. Protecting assets left to spouse or child from present or future creditors 7. Reduction of estate taxes at client's death regardless of estate tax consequences at death of surviving spouse

8. Arranging for care of child with mental or physical handicap

9. Arranging for care of parent or other family member

10. Selection of guardian for minor children

1 1. Arranging for the retention of the family home for the surviving spouse and the children

12. Arranging for disposition of any professional practice assets

13. Dispositions to any charity

14. Protection from will contests

C. Objectives under Power of Attorney I . Enable attorney-in -fact to act for the client should the client become disabled, or for any other reason 2. Enable attorney-in-fact to make tax-free gifts up to the amount of the federal annual exclusion for each intended donee

3. Allow attorney -in-fact to make unlimited tax-free gifts for medical and tuition expenses for each intended donee

4. Empower the attorney-in-fact to act concerning all tax matters for the client

5. Enable the attorney-in-fact to pay for all health care expenses for the client

6. Enable the attorney-in-fact to transfer client's assets to clients revocable trust

7. Enable the attorney-in-fact to change client's domicile

II. DOCUMENT CHECKLIST To determine availability of relevant data

A. Information Regarding Client 1. Current will and codicil

2 . Trust agreements—that client has created or under which the client may be a beneficiary 3. Powers of attorney

4. Nariiralization papers

1-22 APPENDIX C

5. Pending litigation papers

6. Pre- or postnuptial agreements

7. Divorce decree or separation agreement

8. Military discharge papers

9. Adoption papers regarding client or client's family members 10. Health care proxy

1 1. Living will

12. Copies of most recent income tax return and state or federal estate tax return filed for predeceased spouse. a

B. Property Interests

1. Savings accounts and passbooks

2. Personal financial statements

3. Appraisals or documents evidencing ownership of fine art, jewelry, antiques, furs or other valuables 4. Promissory notes and mortgages

5. Inventory of stocks, bonds and securities

6. Safe-deposit box or private safe

7. Copyrights, trademarks and patents

8. Royalty agreements

9. Deeds to current residence and other real estate

10. Title insurance policies

I i. Proprietary lease and stock certificate for cooperative apartment

12. Employee benefit statements

13. Loans and debts owed to client

14. Loans and debts owed by client

I5. Custodian accounts established under New York Uniform Transfers to Minors Acts

~ See EPTL 7-6.1-7-6.26.

1-23 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

C. Life Insurance

1. All policies owned by client or client's spouse 2. All policies owned by client or spouse insuring someone else's life

3. Premium notice regarding insurance policies 4. Summary statement of clients insurance program prepared by insurance agent D. Otherinsurance

i. Homeowner's policy

2. Tenant's policy

3. Floater or fine arts policy

4. Automobile policy

5. Health, hospitalization and major medical policies

6. Disability income insurance

7. Umbrella (excess liability) policy

8. Malpractice insurance

9. Annuity contracts

10. Fraternal benefits

E. Business Interests

I . Agreements concerning joint ventures

2. Partnership agreements

3. Shareholders' abcements

4. Stock redemption agreements

5. Life insurance incident to an agreement

F. Tax Returns I. Copies of state and federal income tax returns for past three years

2. Copies of state and federal gift tax returns that have been filed 3. Copies of estate tax returns for those estates in which the client has received any interest

1-24 APPENDIX C

III. FACT-GATHERING CHECKLIST Provides starting point for preparing and organizing estate plan and assists in four phases of estate planning process:(1) ascertaining facts,(2) analyzing facts,(3) formulating plan,(4) implementing plan.

A checklist also reveals problem areas not obvious to the client:

1. Insufficient life, medical, liability or disability insurance coverage

2. Need for more liquidity to meet estate tax obligations

3. Forgotten obligations created under existing agreements

4. Need for durable general power of attorney

5. Need to secure appointment for guardian and standby guardian for nnentally retarded or developmentally disabled child, pursuant to SCPA article 17-A

6. Need for designation o£ successor custodian pursuant to EPTL 7-6.18 to obviate need for court proceeding if custodian dies before minor attains majority

7. Death of nominated fiduciaries and intended beneficiaries

A. Ascertaining Facts 1. Personal Data—Client

a. Name

b. Address

i. Home

ii. Business

c. Phone

i. Home

ii. Business

d. Social Security number

e. Legal name, aliases, nicknames, surnames

£ Date and place of birth

g. Citizenship

h. Other residences

i. Marital status

j. Date and place of marriage

1-25 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

k. Pre- or postnuptial agreement

1. Prior marriages

i. Date and place

ii. How terminated

(a) Certified copies of decrees or judgments

(b) Potential obligations surviving death

m. Date of adoption, if applicable

n. Occupation

o. Employer

p. If retired, former occupation and employer

q. Military service--branch, grade, serial number

r. Health problems, iF any

s. Location ofsafe-deposit box

t. Resided with spouse in community property states?

i. Community property jurisdictions: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin

ii. Potential problems—decisions in common law jurisdictions showed no consistent pattern regarding disposition of property that was community property or derived from community property

iii. Uniform Disyosition of Conamzrnity Property Rights at .Death Act, Uiaifosm Lativs Anfzotated, Master Edition, Volume 8A, 1-13, adopted by Colorado (1973), Hawaii (1973), Kenhieky (1974), Oregon (1975), Michigan (1976), Arkansas (1981), New York (1981), North Carolina (1982), Virginia (1982), Alaska (1984), Connecticut (1985), Wyoming (1985), Montana (1989) and Florida (1992)

iv. New York law—EPTL 6-6.1 to 6-6.7 codifies this act- cannot dispose of surviving spouse's share of the community property; deceased spouse's interest in community property is not subject to right of election; step-up in basis of value of all commtmity property

2. Personal Data—Client's Spouse

3. Personal Data—Client's Children

a. Adopted children

i. Formal adoption

1-26 APPENDIX C

ii. Equitable adoption

b. Nonmaritals

4. Family Tree of Client and Spouse

a. Client may die residing in, or owning real estate in,jurisdiction with solemn form of probate

b. Indicates client's natural objects of bounty and prospective fiduciaries c. Ntay be required at clients death—for example, see Uniform Rules for Surrogate's Court § 207.16(c)

5. Assets and Type of Ownership

a. Personal property

i. Collectibles

ii. Antiques

iii. Works of art

iv. Furs and jewelry

v. Coin or stamp collection

vi. Furnishings

vii. Motor vehicles

viii. Library

ix. Pets

x. Guns

xi. Professional practice assets

xii. Electronic equipment

xiii. Computers

b. Cash and cash equivalents

i. Savings accounts

ii. Checking accounts

iii. Time deposits

iv. "In trust for" accounts

1-27 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

v. Money market accounts

vi. Treasury bills

vii. Credit union accounts

viii. Cash hoards

a Securities

i. Stocks

ii. Tax-exempt bonds

iii. Corporate bonds

iv. Flower bonds

v. Custody management accounts

vi. Savings bonds

vii. Inveshnent management accounts

viii. Promissory notes and mortgages

d. Life insurance, annuities and employee benefits

i. Face amount of life and group insurance owned on self

ii. Face amount of life and group insurance owned on others

iii. Stock options

iv. Deferred compensation

v. Post-death salary

vi. Vested pension rights and profit-sharing plans

vii. Employee benefit plan statements, summary plan statements and employment literature to detennine other benefits

viii. IRA.

ix. Keogh plan

e. Business interests

i. Proprietorship

ii. Professional practice

1-28 APPENDIX C

iii. Closely held business interests

iv. Tax shelters

v. Joint ventures

vi. Partnership interest

vii. Royalties

viii. Commissions

f. Real estate

i. Principal residence

ii. Vacation residence

iii. Other residences

iv. Undeveloped property

v. Farmland

vi. Oil, gas and mineral interests

6. Liabilities

a. htdbents

b. Bank loans

c. Promissory notes

d. Accounts payable

e. Pledges

£ Secured loans

g. Unsecured loans

h. Accrued taxes

7. Advisers

a. Physician

b. Life insurance agent

c. Casualty insurance broker

d. Accountant

1-29 ESTATE PLANNING AND WILL DRAFTING,2015 REVISION

e. Attorney

£ Investment adviser

g. Securities custodian

h. Banker

i. Clergyman

B. Analyzing Facts

C. Formulating Plan I. Unlimited marital deduction—shifting ownership of assets

2. Gift Diving to reduce taxable estate and reduce income generated from those assets tax exemption 3. Consider splitting assets to take advantage of unified credit and generation-skipping

4. Joint ownership of property in other jurisdictions to avoid ancillary proceedings

5. Consider purchasing additional life insurance to meet anticipated estate tax obligations

6. Use of durable power of attorney as estate-planning tool

7. Consider relevancy of health care proxy and living will making charitable dispositions, 8. Determine if client has charitable intentions and discuss vehicles for if applicable death 9. Establish a revocable trust for asset management during lifetime and after

10. Establish an irrevocable insurance trust to use as agift-making vehicle

1 1. Estate planning with increasingly more emphasis on lifetime planning

12. Tailor plan to meet client's objectives

1-30

BASICS OF WILL DRAFTING

PATRICIA J. SHEVY, ESQ.

THE SHEVY LAW FIRM LLC ALBANY, NY

BASICS OF WILL DRAFTING

PATRICIA J. SHEVY, ESQ. THE SHEVY LAW FIRM LLC [email protected]

The Importance of Having a Will

A Will sets forth a person’s directions with respect to the direction of his or her assets after death. Without a properly executed Will, the laws of intestacy will apply to the distribution of a person’s assets. Many clients assume that the laws of intestacy will suffice. However, what happens in the following example: Husband and Wife have 3 minor children. Husband has $700,000 in assets. Wife has $1,000 in assets. The house is owned jointly by Husband and Wife. Husband dies. Wife keeps the house as surviving joint tenant. The remaining $700,000 is divided between Wife and children according to the laws of intestacy (Wife receives $50,000 plus ½ of the remaining $650,000; the 3 children split the remaining $325,000). But remember the children are minors, so the court will be involved until the youngest child reaches majority. This is probably not the outcome Husband and Wife had in mind.

Problems with Intestate Succession

When a New York State resident dies leaving no Will, the assets of the decedent will be distributed under New York Estates, Powers and Trusts Law (“EPTL”) Article 4, which lists the order and amount that family members will take from the estate of the decedent. In cases where a person dies intestate, EPTL §4-1.1 provides that a decedent’s assets will be distributed as follows: . If survived by a surviving spouse and children, the spouse receives $50,000 and ½ of the balance. The children equally share the balance. . If survived by only a surviving spouse, the spouse receives everything. . If survived by only children, the children equally share everything. If there is a predeceased child, his or her children share their parent’s inheritance, by representation. . If survived by only parents (no spouse, children, grandchildren or younger generations), the surviving parent or parents receive everything. . If survived by only by brothers and sisters and/or nieces and nephews, the brothers and sisters and/or nieces and nephews, will equally share everything, by representation. . If survived only aunts and uncles and/or cousins, the aunts and uncles and/or cousins will share equally everything, by representation. . If survived only by great-grandchildren of grandparents, the great-grandchildren of grandparents will equally share everything.

While EPTL Article 4 clearly describes the distribution of property of a decedent who dies without a Will, it is important to look at some troubling matters that arise outside of the statute. One important reason to have a Will is that New York State does not recognize informal documents that dispose of the decedent’s real and personal property if no will exists. All assets pass through the laws of intestacy statute regardless of what the decedent truly wanted.

When a person has died without a Will, the process of administering that person’s estate is governed by the laws of intestacy. Rather than an executor being appointed by the Court under a “probate proceeding,” an administrator will be appointed by the Court to handle the distribution of that person’s assets. New York Surrogate’s Court Procedure Act (SCPA) §1001 provides that letters of administration must be granted to the persons who are distributees of an intestate and who are eligible and qualify, in the following order: . the surviving spouse . the children . the grandchildren . the father or mother . the brothers or sisters . any other persons who are distributees and who are eligible and qualify, with preference being given to the person entitled to the largest share in the estate.

Where there are eligible distributees equally entitled to administer the court may grant letters of administration to one or more of such persons. If the distributees are issue of grandparents, other than aunts or uncles, on only one side, then letters of administration shall issue to the public administrator or chief financial officer of the county. SCPA §1001. In order to qualify to apply for the Administrator position, a person must fall under one of the categories of SCPA §1001 and must meet the following requirements as set forth by SCPA §1002. The petition must allege the citizenship of the petitioner and the decedent or person alleged to be deceased, that the decedent or person alleged to be deceased left no will, or that the case is within 1001(9) and must state whether or not the intestate or person alleged to be deceased left any: . personal property and its estimated value and . real property, whether it is improved or unimproved, a brief description thereof, the estimated value of the real property and improvements, if any, and the estimated gross rents for the period of 18 months. SCPA § 1002.

In a proceeding for letters of administration, every eligible person who has a right to administration prior or equal to that of the petitioner and who has not renounced must be served with process. SCPA §1003. Before making a decree granting letters of administration, the court may require the petitioner to serve by mail a written notice of the application upon every distribute of the intestate who has not been required to be served with process and who has not appeared in the proceeding or waived process. SCPA §1005. The original Notice must be filed with the court together with an affidavit of service. SCPA §1005 further provides that this notice shall contain: . Each and every name of the intestate known by the petitioner. . The fact that letters of administration have been applied for by the petitioner . That a decree will be made granting letters and to whom. . The names and addresses of petitioner and each and every distribute listed in the petition. . That no other distributes are known to exist. . That letters will issue on or after the dated fixed on the notice.

There are six instances when a spouse will be disqualified from inheriting under the laws of intestacy. A husband or wife will be considered a surviving spouse unless (1) A final decree or judgment of divorce, annulment, nullity, or dissolution of marriage due to absence, was issued and in effect when the deceased spouse died; (2) The marriage was void as incestuous, bigamous, or there was a prohibited remarriage; (3) The spouse had obtained a final decree or judgment of divorce, annulment, nullity, or dissolution of marriage due to absence outside of New York State that was not recognized as valid under New York State law; (4) A legally recognized final decree or judgment of separation was rendered in New York State against the spouse and was in effect when the deceased spouse died; (5) The spouse abandoned the deceased, and such abandonment continued until the time of death; and (6) a spouse, who had the duty to support the other spouse, failed or refused to so even though that spouse had the means to do so. EPTL §5-1.2. Under any of these six circumstances, a spouse would not be permitted to collect from the estate of the deceased spouse if the decedent died intestate nor will a jury trial be permitted to determine spousal disqualification. In re Ruggiero’s Estate, 51 A.D.2d 969, 970, 368 N.Y.S.2d 722, 726, 82 Misc.2d 211, 215 (1975).

The Court of Appeals gives two elements for proving abandonment by one spouse. The petitioner must show that the abandonment was (1) unjustified and (2) without the consent of the other spouse. The court in In re Maiden’s Estate said “to constitute abandonment under this statute something more is necessary than a departure of a spouse from the marital abode or a living apart. The departure must be unjustified and without the consent of the other spouse. The burden to establish abandonment is and remains at all times upon those asserting it.” In re Maiden’s Estate, 31 N.E.2d 889, 284 N.Y. 429, 430 (1940). In Matter of Baldo, the spouse’s choice to sever all contact with decedent at the end of his life and to establish a continuing relationship with another man was evidence sufficient to establish "that hardening of resolve, that irrevocable decision by [respondent]" to terminate her prior conjugal relationship with decedent, and compels a finding of abandonment as a matter of law. Matter of Estate of Baldo, 620 N.Y.S.2d 602, 604, 210 A.D.2d 848, 850 (3rd Dept. 1994).

Similarly, in In re Goethie’s Will, the court gives evidence as to who will not take as surviving spouse. The court said, “there can be no clearer or more convincing abandonment of the marital status, or of a spouse, than the solemnizing of a ceremonial marriage to another followed by open and continuous cohabitation and the birth of issue of the subsequent union.” In re Goethie’s Will, 161 N.Y.S.2d 785, 787, 9 Misc.2d 906, 908 (1957).

EPTL §5-1.4 provides that unless the governing document provides otherwise, a divorce (including a judicial separation) or annulment of a marriage revokes a disposition or appointment by Will, payable/transfer on death designation or beneficiary designation for a life insurance policy or pension/retirement account or by revocable trust. For purposes of these potential transfers to a former spouse, the former spouse will be treated as having immediately predeceased the testator as of the time of the revocation. EPTL §5-1.4(b)(1).

A parent will be disqualified from inheriting under intestacy, any of his or her deceased child’s assets if the parent had abandoned the child. Matter of Daniels’ Estate, 275 A.D. 890, 90 N.Y.S.2d 26 (4th Dep’t 1949.) The court in this case decided that “the compulsory payment of $7.50 for a period of four weeks under order of the Children's Court did not constitute a resumption of the 'parental relationship and duties' within the purview of the statute [Decedent Estate Law, § 87, subd. (e); § 133, subd. 4, par. (c).]” and therefore, the father would not be allowed to share in the estate of his deceased child. Id.

Multiple cases have been decided in New York State that prohibit a beneficiary who murders the decedent to collect any inheritance from the decedent’s estate, including instances where the decedent died intestate. Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188 (1889.) In re Nicpon’s Estate makes a distinction, however, in that, though the wrongdoer cannot inherit as a result of his own wrongdoing and the estate of the wrongdoer cannot inherit, an existing interest in the wrongdoer is not diminished simply because of the wrongdoing. In re Nicpon’s Estate, 102 Misc.2d 619, 424 N.Y.S.2d 100 (1980.) A caveat to this rule is that a mentally ill person who murders the decedent will not be disqualified from inheriting. In In re Wirth’s Estate, husband who was found not guilty of murdering his spouse by reason of insanity was not disqualified from taking a share of the wife’s estate. In re Wirth’s Estate, 59 Misc.2d 300, 298 N.Y.S.2d 565 (1969.)

EPTL §4-1.1(d) states that a child who has been adopted becomes a member of that family, the same as a natural born child of that family. The adopted child will be able to take a distributive share of a deceased adoptive parent’s estate and has a right to intestate succession. The court in Bourne v. Dorney said, “in other words, the Legislature has ordained that there shall be no difference in the right to inherit between a child by adoption and his heirs and next of kin and a child by nature and his heirs and next of kin, and the courts, as in duty bound, have obeyed the command.” Bourne v. Dorney, 171 N.Y.S. 264, 268, 184 A.D. 476, 481 (2d Dep’t 1918). Domestic Relations Law §117(1)(a) states that once a child has been adopted and can take under the intestate succession of the adoptive parents, the child is cut off from inheriting under the intestate succession of the natural parents. The court in DeMund v. LaPoint supported the statute when it ruled in favor of the plaintiffs, stating that a court order of adoption had terminated the right of the defendant to inherit from his natural parent. DeMund v. LaPoint, 647 N.Y.S.2d 662, 665, 169 Misc.2d 1020, 1025 (1996).

It is well settled law that a step-child of the decedent who has not been adopted will not be able to take under the estate of the decedent. The only way for a step-child to take under the estate of the decedent is for the step-child to have been adopted by the decedent. Then the court considers the step-child and parent to be of the same blood. In re Marquet’s Will, 178 N.Y.S.2d 783, 784, 13 Misc.2d 958, 959 (1958.)

A non-marital child can inherit from the natural mother and the mother’s family. EPTL §4-1.2 states that a non-marital child can inherit from the father if proof can be offered for any of the following: (1) An Order of Filiation has been filed; (2) There has been an acknowledgment of paternity by the father which has been filed with the Putative Father’s Registry; (3) The father has consented to and tested positive in a blood genetic marker test, showing paternity, and other clear and convincing evidence has been presented; or (4) There has been open and notorious acknowledgment by the father that he is the father, and there is other convincing evidence or proof of paternity. In re Flemm’s Will, 381 N.Y.S.2d 573, 577, 85 Misc.2d 855, 861 (1975.) This proof can not be offered posthumously, but must be offered during the decedent’s lifetime. Matter of Malavase, 520 N.Y.S.2d 49, 49, 133 A.D.2d 759, 760 (2d Dep’t 1987.)

Lastly, Abandoned Property Law §600 (1) (b) and Surrogate’s Court Procedure Act §2222 state that unclaimed property will be deemed abandoned property if at the time a person is entitled to receive the distribution of monetary proceeds from the decedent’s estate, the whereabouts of that person are unknown. In this situation, the money owed to that person will escheat to the state, and more specifically, to the comptroller, who will retain the money in case the person appears to claim it. In 2003 there was an addition to the statute, section 1422, that now requires due diligence before remitting funds to the state. This includes advertising the names of property owners in publications and performing mailings at scheduled intervals before turning over the money to the state. Aban. Prop. §1422 (2004).

Though the New York State legislature has written a statute that disposes of a decedent’s estate if no Will has been written, the main advantage to having a Will is that the writer’s wishes will be honored. Without a Will, the decedent’s wishes may not be met. Certain people may be disqualified from receiving assets that the decedent intended if they do not fall within EPTL §4- 1.1. The best way to be sure that the decedent’s assets go to the people the decedent intended is to specifically name those people in a Will. Drafting Wills

In New York State, the substantive law of Wills is governed by Article 3 of the New York Estates, Powers and Trusts Law (“EPTL”). Any person 18 years of age or older, of sound mind and memory, may dispose of his or her assets by Will and exercise a power to appoint such property. EPTL §3-1.1. “Sound mind and memory” requires only a “lucid moment” that the testator have a general understanding of the testator’s assets and the objects of the testator’s bounty (those who would inherit if there is no Will). A good test to determine capacity is to request that the testator draw out a family tree with the attorney draftsperson, naming all of the children, grandchildren or other closest living blood relatives. If there are no children, it is also a helpful practice to draw the family tree so that location of the distributees will be made easier after the testator’s death.

Every Will should include the following:

Any Specific Bequests; Tangible Personal Property Disposition; Any Cash Bequests; Residuary Disposition; Appointment and Resignation of Executors, Trustees and Alternates; Powers of Executors and Trustees; Bonding (or No Bonding Requirement); Tax Apportionment Provisions (EPTL §2-1.8 governs if Will is silent).

Other common Will provisions include:

Marital Deduction Trusts (estate tax planning, permitting the deferral of estate tax until the second death); Credit Shelter Trusts (estate tax planning, ensuring the use of each spouse’s estate tax exemption); Trusts for Minor (or Young, not necessarily “Minor”) Beneficiaries; Creditor Protection Provisions; Medicaid Protection Provisions; Lifetime Trusts (“Dynasty Trusts”).

Estate tax planning must be considered. While a detailed analysis of the federal and New York State estate tax rules is beyond the scope of these materials, the federal gift and estate tax exemption (the amount which a person may give during lifetime or pass at death without paying federal gift or estate tax) is $5 Million, indexed for inflation ($5.45 Million in 2016). There is “portability” of the federal estate tax exemption for married couples, meaning that the unused estate tax exemption of the predeceased spouse can be utilized by the surviving spouse ($10.9 Million total exemption for a married couple). In addition to the $5.45 Million estate and gift tax exemption, each person may gift up to $14,000 annually to as many recipients as he or she chooses without even filing a gift tax return. New York States does not have a gift tax, but does have an estate tax that brings back gifts made within 3 years prior to death as part of the estate tax calculation. The New York State estate tax exemption increases annually as follows:

April 1, 2015 – March 31, 2016 $3,125,000 April 1, 2016 – March 31, 2017 $4,187,500 April 1, 2019 – March 31, 2019 $5,250,000 April 1, 2019 and forward Equal to Federal Exemption

Under the federal rules, “portability” permits spouses to use each other’s exemptions, meaning that a married couple can fully utilize the full $10.9 Million of federal exemption. New York does not recognize portability, so planning must be implemented for each spouse to use both spouses’ New York exemptions. Additionally, New York’s estate tax law requires estates valued at 105% of the exemption (currently $3,281,250) to lose the exemption in its entirety with New York estate tax calculated on the full value of the estate (essentially meaning there is no state estate tax exemption for these estates).

Other NYSBA programs sponsored by the Trusts and Estates Section and Elder Law Section are routinely offered providing instruction in Will drafting, estate and long term care planning.

Proper Execution of Wills

Pursuant to EPTL §3-2.1, except for nuncupative and holographic Wills authorized under EPTL §3-2.2, every will must be in writing, and executed and attested in the following manner:

The Will must be signed at the end thereof by the testator (or in the name of the testator by another person in the testator’s presence and by the testator’s direction). The signature of the testator must be affixed to the Will in the presence of each of the attesting witnesses, or must be acknowledged by the testator to each of the witnesses to have been affixed by the testator or at the testator’s direction. The testator may sign either in the presence of, or acknowledge the testator’s signature, to each attesting witness separately.

The testator must declare to each of the attesting witnesses that the instrument to which the testator’s signature has been affixed is the testator’s Will.

There must be at least 2 attesting witnesses, who must, within one 30 day period, both attest the testator’s signature, as affixed or acknowledged in their presence, and at the request of the testator, sign their names and affix their addresses at the end of the Will.

The competence of an attesting witness is addressed by EPTL §3-2.2. An attesting witness to a Will to whom a beneficial disposition or appointment of property is made is a competent witness as if no disposition or appointment has been made, subject to the following:

Any disposition or appointment to an attesting witness is void unless there are, at the time of the execution and attestation, at least 2 other attesting witnesses to the Will who receive no disposition or appointment.

Such an attesting witness is entitled to receive so much of his or her intestate share as does not exceed the value of the disposition made to the witness under the Will.

In practice, it is advisable to follow the same execution ceremony every time your client executes his or her Will. It is also advisable that a draft of the Will be provided to the testator long in advance of the execution ceremony, leaving the testator sufficient time to review the draft, ask questions and make changes. An example of such an execution ceremony is as follows:

The lawyer, testator and 2 attesting witnesses are in the same room and no one enters or leaves the room during the Will execution ceremony. The lawyer provides the final Will to the testator and gives the testator time to review the Will. The lawyer described generally the dispositive terms of the Will and appointments of fiduciaries.

The lawyers asks the testator the following questions, to which the testator responds yes:

o Is this your Will?

o Does it express your wishes?

o Are you asking Witness 1 and Witness 2 to be the attesting witnesses to your Will?

The testator then signs the Will at the end thereof. The witnesses sign after the attestation clause. It is also best practice to have the witnesses sign the Affidavit of Subscribing Witnesses at the same time.

If the Will is not stapled prior to execution, it is a good practice to have the testator sign or initial in the margin of every page of the Will. It can be explained to the testator that by signing each page, no one can remove or replace the pages of the Will after the execution ceremony as the testator’s signature/initials appear on every page.

If the lawyer cannot be present at the Will execution ceremony, the following instructions should be provided to the testator, in writing:

Ask at least two people to be witnesses to the execution of the Will. None of the witnesses should be your spouse, children or anyone who is a beneficiary of your estate. Each must be at least 18 years old.

The Will has been prepared with what is called a Self-Proving Affidavit. That is the very last page of the Will and should be signed at the same time the Will is signed. It must also be notarized and, therefore, a notary public should also be present when the Will is signed. If that is not possible, that affidavit should be left blank. The notary cannot be the same person as one of the witnesses. At the time you sign the Will, you, all witnesses, and the notary should be in the room together and everyone must watch everyone else sign.

When you sign the Will, you must state to the witnesses that the document you are signing is your Will. You must insert the day and month in which you are signing in the spaces provided and then sign on the line indicated.

You must then specifically ask the witnesses to sign as witnesses and each of them should sign his or her name and address in the spaces provided beneath your signature.

Please also have each of them print his or her name and address on a separate sheet of paper so that we will be sure that we are able to read the signatures and spell the names and addresses correctly.

You and each of the witnesses must also sign the Self-Proving Affidavit on one of the lines just below the middle of the page and the notary will then sign at the bottom. The notary must also insert the witnesses names in the appropriate spaces and, if the Will is being signed in Florida, list the form of identification.

It is very important that each of these steps be followed exactly as I have indicated. They are what are called testamentary formalities and are required to have been observed in order for the Will to be seen as valid. Each of the witnesses should also understand that the self-proving affidavit is a sworn document that will be submitted to the court in which the Will is offered for probate. By signing it, the witness is swearing that you declared the document to be your Will and asked him or her to sign, that he or she saw you and the other witnesses sign, and that you were of sound mind at the time.

Once the Will has been signed, please send the original, and the separate sheet on which the witnesses have listed their names and addresses, to me by certified mail, return receipt requested. The Will will be placed in our vault for safe-keeping. I will have a photocopy made and sent back to you to keep for your records. If you have the original of any earlier Will, that original should now be destroyed by you by tearing it in pieces and throwing the pieces in the trash. If you do not have the original, you should contact the attorney who drew it to ask him or her to send that original to you so it can be destroyed.

Sample Wills

The following Wills are meant as examples. It is important that each Will be prepared with the specific instructions of the testator in mind. Explanatory footnotes are included in these drafts for the ease of the testator in reviewing the drafts before execution. The explanatory notes MUST be removed before the Will is executed. Also remember, that under Schneider v. Finmann, the executor of the estate now has the ability (and duty) to bring a malpractice action against the attorney draftsperson. Schneider v. Finmann, 15 N.Y.3d 306 (2010). As such, it is important that the attorney draftsperson have a full understanding of the testator’s goals, and discuss both estate tax planning and long term care planning to ensure the testator has been apprised of all applicable planning tools available. If the testator has potential estate tax and refuses to implement estate tax planning, be sure the file notes and the letter accompanying the draft documents indicate that the planning was recommended and rejected by the testator.

Samples have been included for the following scenarios:

. Estate Planning Worksheet . Single Person, No Trusts for Beneficiaries; . Single Person, Trusts for Minor/Young Beneficiaries; . Married Couple, No Trusts for Beneficiaries; . Married Couple, Trusts for Minor/Young Beneficiaries. ESTATE PLANNING WORKSHEET

First Middle Initial Last (Self)

Date of Birth Social Security Number

First Middle Initial Last (Spouse)

Date of Birth Social Security Number

Address Street City State Zip

Phone Numbers: Home Work- Self

Work- Spouse Cell- Self

Cell- Spouse Email:

Marital Status:  Married  Divorced  Separated  Single (including widowed)

Do you presently have a will?  Yes  No

Do you presently have a trust?  Yes  No

Were there any previous marriages?  Yes  No

Do any of your children or other beneficiaries have disabilities?  Yes  No

Do you own a farm or business?  Yes  No

Are you a U.S. citizen?  Yes  No

Are there any serious health problems?  Yes  No

If yes, please describe briefly:

Do you own a long-term care (nursing home) insurance policy?  Yes  No

Please bring copies of any existing estate planning documents with you to our meeting. CHILDREN, GRANDCHILDREN OR OTHER BENEFICIARIES

Name Address Phone Number Date of Birth Relationship

ASSET/LIABILITY INFORMATION

Please list your asset/liability information in the appropriate category below. Attach a separate page if necessary. While exact amounts are not necessary, a realistic estimate for each account is required to provide us with the information required to make the proper recommendations.

Type of Asset Title in Which Held Type of Property Current (Self, Spouse, Joint, Joint (Residential, Value with Another Person) Commercial)

REAL ESTATE (Include address. Bring deed and tax bill if considering Medicaid planning.)

Personal Residence

Vacant Land

Other:

LIQUID ASSETS (Include Financial Institution)

Cash on Hand

Checking Accounts

Savings Accounts

Other Asset Types Title in Which Held Current Value (Self, Spouse, Joint, Joint with third party; or Tenants in common, etc.)

Certificates of Deposit

Brokerage

Equity in Business  Sole Prop.  Partnership  Corporation  LLC

Notes and Loans Receivable

Pension/Profit Sharing Owner Beneficiary

Life Insurance Owner Beneficiary Cash Value Death Benefit

Retirement Accounts, IRAs, Owner Beneficiary 401(k)s, 403(b)s, Deferred Compensation

Other Assets

Liabilities Name Loan Taken In: Amount Owed (Self, Joint, Other)

GIFT TAX RETURNS

Have gift tax returns ever been filed to report gifts made? If yes, please bring copies of the returns to your appointment.

APPOINTMENTS

1 . PERSONAL REPRESENTATIVE (Executor). The Executor is responsible for administering your estate (paying bills and making distributions to beneficiaries), and probating your Will. Please include addresses and phone numbers.

EXECUTOR: ALTERNATE: SECOND ALTERNATE:

2. HEALTH CARE AGENT. Who should be named to make medical decisions on your behalf including decisions regarding medical consents, life support issues and nursing home admission if you were unable to make these decisions yourself? It is not necessary to appoint the same person who is your successor trustee or personal representative as your health care agent. Please include addresses and phone numbers.

HEALTH CARE AGENT: ALTERNATE: SECOND ALTERNATE:

3. AGENT UNDER POWER OF ATTORNEY. Who should be named to transact business in your name in the event you become disabled or incompetent?

AGENT: ALTERNATE:

PLAN OF DISTRIBUTION

1. SPECIFIC GIFTS. Do you want to make charitable gifts, such as to a church or other institution? Do you wish to make a special gift to a particular person, such as a piece of jewelry to a particular child?

Briefly describe where you would want assets remaining after any specific gifts are distributed. (Don’t worry about tax planning or other considerations in answering this question. We’ll consider those details later if needed.)

PLEASE COMPLETE THIS SECTION ONLY IF YOU HAVE MINOR BENEFICIARIES OR BENEFICIARIES WITH DISABILITIES

1. GUARDIAN. If you have minor children or an incompetent child, you will need to appoint a guardian. The guardian is responsible for the day-to-day care of the child. It is a good idea to name an alternate guardian in the event your first choice cannot serve.

GUARDIAN: ALTERNATE:

2. TESTAMENTARY TRUSTEE. You may need a trustee to manage assets for children until they reach an age when you believe they should be capable of managing property on their own. The trustee can be a relative, friend, trust company or other person you trust to manage and distribute assets according to your wishes. The testamentary trustee can be the same person named as the guardian, or could be a different person.

TESTAMENTARY TRUSTEE: ALTERNATE:

3. AGE OF DISTRIBUTION. If you do establish a trust to allow a third party to manage assets for beneficiaries, then it is necessary for you to decide when the beneficiaries will be mature enough to manage assets on their own. You may want to give each beneficiary his/her share at the time the beneficiary reaches a particular age. I typically recommend 30 as the youngest age for outright distribution. You may consider splitting the distribution, such as ½ at age 25 and the balance at age 30, or 1/3 at 21, 1/3 at 25, and 1/3 at 35. You may use any age or combination of ages that you choose.

GENERAL QUESTIONS

NOTES AND QUESTIONS: Please note anything else which may be of importance in planning your estate, or note and questions you may have.

NOTES

WILL OF [CLIENT]1

I, [CLIENT], of [City], New York, do make, publish and declare this to be my Will hereby revoking all prior Wills and Codicils made by me.

FIRST: I give all of my personal effects, household effects, automobiles and other tangible personal property to my children who survive me, to be divided among them as they agree, or if they are unable to agree, then as my Executor determines. Without in any way limiting this gift, I request that my tangible personal property be distributed in accordance with a letter I plan to leave for that purpose.2

SECOND: I give the rest of my property, real and personal, wherever situated, herein called my residuary estate, to my descendants who survive me, per stirpes.3

THIRD: 4 Whenever, under this Will, any property vests in a person who has not attained the age of 21, my Executor, without authorization from any court, shall have the power to manage such property, may exercise in respect of such property and the income

1 This Will is a sample only. Be sure to prepare based on client’s wishes. Remove footnotes before the Will is executed. 2 This Article provides for the distribution of all personal and household effects. If you would like certain items to be distributed to particular family members, you should provide specifically so in this Will. While a letter will provide your wishes, it is not legally enforceable. 3 The rest of your assets will be distributed to your descendants (children and younger generations) on a “per stirpes” basis. “Per stirpes” is a legal term that means the children of a predeceased beneficiary equally share their parent’s inheritance. For example, if [Child] predeceases you, [Child]’s children will equally share [Child]’s interest in your estate. 4 In the event a minor inherits under your Will, the Executor can hold the minor’s inheritance in trust until the age of 21 or distribute the minor’s inheritance directly to the minor, to the minor’s parent or to a custodial account for the minor.

therefrom all powers conferred by this Will on my Executor (and all powers conferred by law on executors) and may hold such property until such person attains the age of 21 upon the following terms:

A. There may be used for the person as much of the property, and the income therefrom, as may be determined in the discretion of my Executor. Any income not paid shall be accumulated and added at least annually to principal.

B. In connection with the exercise of the above discretionary power to distribute income or principal, there is no requirement to take into account the other income or capital resources of the person, the interest of the person in any other fund, or the duty of any one to support the person, although these factors may be taken into account.

C. Any part or all of such property, or the income therefrom, may be applied for the benefit of the person, and in the case of a minor may be paid or delivered to the minor, to a parent or guardian of the minor, to an individual with whom the minor resides, or to a custodian for the minor under any Uniform Transfers to Minors Act or similar statute, as may be determined in the discretion of my Executor.

D. The remaining property shall be distributed to the person when he or she attains the age of 21, or to the estate of the person upon his or her death prior to attaining such age.

FOURTH: In addition to the powers conferred by law, my Executor has complete discretion to exercise each of the following powers without authorization from any court, it being my intent that these powers be construed in the broadest possible manner:5

A. To retain any property, real or personal, to carry on any business in which I may have an interest, and to invest and reinvest in any property, real or personal, all as my Executor may determine, without regard to any requirement for diversification;

5 This Article grants specific powers to the Executor. These are broad powers designed to ensure maximum flexibility in the administration of your estate.

B. To sell, grant options with respect to, or dispose of, any property, real or personal, for cash or on credit, with or without security, upon the terms that my Executor may determine;

C. To lease any property, real or personal, for any period, upon the terms (including options for renewal) that my Executor may determine, and to improve or take any other action with respect to real property;

D. To borrow money for any purpose, from others or from any Executor, with or without security, and to mortgage or pledge any property, real or personal;6

E. To employ agents, brokers, attorneys, accountants, custodians and investment advisors (including any individual Executor), and to treat their compensation as an administration expense;

F. To take control of, conduct, continue or terminate any of my digital accounts on any social networking website, any micro-blogging or message service website or any e-mail website, including, but not limited to, broker accounts, utility accounts, Credit Union and bank accounts, other financial institutions and similar digital accounts related to personal, financial, photographs, medical, tax and real estate, customer affinity programs, and any file storage sites; and

G. To sell any property, real or personal, to any Executor or beneficiary at fair market value; and

H. To make any distribution or division of property wholly or partly in kind, whether or not pro rata, using specific assets or undivided interests therein.7

6 While it is unlikely that the Executor may need to borrow money, this power also means that the Executor or others may be reimbursed for funds advanced for the payment of your funeral expenses or other bills that are paid before your Will is admitted to probate. 7 A distribution “in kind” means that the Executor can distribute an investment directly to a beneficiary. For example, if the estate owns 10 shares of stock in a corporation, the Executor can distribute the 10 shares directly to the beneficiary rather than liquidating the shares and distributing the cash.

FIFTH: Where a party to any proceeding with respect to my estate has the same interest as a person under a disability, it is not necessary to serve legal process on the person under a disability.8

SIXTH: All inheritance, estate, transfer, succession or other death taxes (including any interest or penalties) payable by reason of my death with respect to the property passing under this Will or any property not passing under this Will shall be paid from my residuary estate.9

SEVENTH: A. I appoint my [Ex Relation], [EXECUTOR], to be the Executor of this Will. If [s/he] fails to qualify or to continue to act, I appoint my [Ex2 Relation], [EXECUTOR2], and [Ex3 Relation], [EXECUTOR3], or the survivor of them, to be substitute Executors.10

B. No bond (including a bond with respect to the advance payment of commissions or the issuance of Preliminary Letters) or other security is required of any Executor in any jurisdiction.

C. Any Executor may resign by filing a written notice of resignation with the court having jurisdiction of the administration of my estate. In addition, any Executor is deemed to have resigned if there is filed in such court a certification in writing from any attending physician of that Executor that he or she is no longer able to make decisions with respect to financial matters.

8 This Article permits the Court to waive the appointment of a Guardian Ad Litem (an attorney) for a minor or otherwise disabled beneficiary if a competent adult has the same interest under your Will as the minor or disabled beneficiary. 9 This Article concerns the payment of estate tax. The federal estate tax exemption (the amount a person can pass without paying federal estate tax) is $5.45 Million with a 40% tax rate. The New York State estate tax exemption is $3,125,000 through March 2016, $4,187,500 from April 1, 2016 through March 31, 2017, and increases annually through 2019 when it reaches the federal exemption. 10 This Article concerns the Executor, provides for the appointment of successor Executors and the resignation of Executors.

D. As used in this Will, the term “Executor” means the Executor or Executors acting from time to time and any Administrator with the Will annexed.

IN WITNESS WHEREOF, I have duly executed this Will this day of _____, 20___.

______[Client]

The foregoing written instrument was on the date thereof, signed, published and declared by the testator therein named as the testator’s Will in the presence of us and of each of us, who, at the testator’s request, in the testator’s presence and in the presence of each other, have subscribed our names as witnesses thereto.

residing at

STATE OF NEW YORK ) : SS. COUNTY OF ALBANY )

All of the undersigned, individually and severally being duly sworn, depose and say:

The foregoing Will was subscribed in the presence and sight of all of the witnesses by [CLIENT], the testator, on the ____ day of ______, 20__, at [address where Will is signed], at which time the testator declared the instrument so subscribed to be the testator’s Will. All of the witnesses thereupon signed their names as witnesses at the request of the testator, in the presence and sight of the testator and of each other, and under the supervision of [SUPERVISING ATTORNEY], an attorney-at-law.

Each of the witnesses was acquainted with the testator at such time and makes this affidavit at the testator’s request. The testator was, at the time of so executing said Will, over the age of eighteen years, and, in the respective opinions of the witnesses, of sound mind, memory and understanding and not under any restraint or in any respect incompetent to make a Will; could read, write and converse in the English language; and was suffering from no defect in sight, hearing or speech, or from any other physical or mental impairment that would affect the testator’s capacity to make a valid Will. The Will was executed as a single, original instrument and was not executed in counterparts.

______Witness

Severally subscribed and sworn to before me this ______day of ______, 20___.

______Notary Public

WILL OF [CLIENT]11

I, [CLIENT], of [City], New York, do make, publish and declare this to be my Will hereby revoking all prior Wills and Codicils made by me.

FIRST: I give all of my personal effects, household effects, automobiles and other tangible personal property to my children who survive me, to be divided among them as they agree, or if they are unable to agree or if any of them is a minor at the time of division, then as my Executor determines. Without in any way limiting this gift, I request that my tangible personal property be distributed in accordance with a letter I plan to leave for that purpose.12

SECOND: I give the rest of my property, real and personal, wherever situated, herein called my residuary estate, to my descendants who survive me, per stirpes, subject to Article THIRD.13

THIRD: Any property (other than tangible personal property) that would otherwise pass outright under this Will (other than pursuant to the exercise of a discretionary fiduciary power) to a descendant of mine who has not attained the age of [Age], shall instead be

11 This Will is a sample only. Be sure to prepare based on client’s wishes. Remove footnotes before the Will is executed. 12 This Article provides for the distribution of all personal and household effects. If you would like certain items to be distributed to particular family members, you should provide specifically so in this Will. While a letter will provide your wishes, it is not legally enforceable. 13 The rest of your assets will be distributed to your descendants (children and younger generations) on a “per stirpes” basis. “Per stirpes” is a legal term that means the children of a predeceased beneficiary equally share their parent’s inheritance. For example, if [Child] predeceases you, [Child]’s children will equally share [Child]’s interest in your estate.

held by the Trustee as a separate trust for that descendant (the “Beneficiary”) upon the following terms:14

A. The Trustee may distribute to the Beneficiary any part or all of the income and principal of the trust as the Trustee may determine for health, support, maintenance or education. Any income not paid shall be accumulated and added at least annually to principal.

B. The Trustee shall distribute the remaining principal of the trust to the Beneficiary upon his or her attaining the age of [Age].15

C. If the Beneficiary dies prior to attaining the age of [Age], then upon his or her death the remaining principal of the trust shall be distributed, subject to this Article, in equal shares to his or her then surviving children; or if there is none, to the then surviving descendants, per stirpes, of the person who, among a class consisting of me and my descendants, is the Beneficiary’s closest ancestor with any then surviving descendant.16

D. Notwithstanding anything herein, any trust created under this Will for any person not in being at the date of my death shall (unless terminated earlier) terminate 21 years after the death of the last to survive of all descendants of my parents in being at such date, and upon such termination the assets of such trust shall be distributed to that person.17

14 This Article establishes a trust for any beneficiary under the age of [Age]. During that time, the Trustee may distribute the trust assets for the beneficiary’s health, support and educational needs. 15 The balance of the trust will be distributed to the beneficiary when he or she attains the age of [Age]. 16 If the beneficiary dies before the age of [Age], the beneficiary’s children will inherit the balance of the trust. If the beneficiary does not have children, the beneficiary’s siblings will share the balance equally. 17 This prevents any trust from violating the Rule Against Perpetuities-- a rule that does not permit trusts to last forever.

FOURTH: 18A. Any property, whether principal or income, distributable to any person under this Will, may be applied for the benefit of that person, including without limitation a distribution to a trust for the benefit of that person. In the case of a minor, the property may be paid or delivered directly to the minor, to a parent or guardian of the minor, to a person with whom the minor resides, or to a custodian for the minor under any Uniform Transfers to Minors Act or similar statute until age 21 or whatever earlier age is the maximum permitted under applicable law.19

B. Except as otherwise specifically provided herein, in connection with the exercise of a discretionary power to distribute income or principal to any person, there is no requirement to take into account a person’s other income or capital resources, the interest of the person in any other fund, or the duty of anyone to support the person, although these factors may be taken into account.20

C. Notwithstanding anything herein, no person may participate in a decision to make any proposed discretionary distribution of income or principal to himself or herself or to satisfy any legal obligation of that person.21

D. No beneficiary of any trust has any right or power to anticipate, pledge, assign, sell, transfer, alienate or encumber his or her interest in the trust in any way; nor is any interest in any manner liable for or subject to the debts, liabilities or obligations of the beneficiary or claims of any sort against the beneficiary.22

18 This Article provides standard terms for administering your Will. 19 If a minor’s inheritance is too small to justify a trust, this permits the Executor to distribute the inheritance directly to the minor, to the minor’s parent or to a custodial account for the minor. 20 The Trustee may take a beneficiary’s income and other resources into consideration, but is not required to do so. 21 A Trustee cannot distribute trust assets to himself or herself or to satisfy the Trustee’s legal obligations, such as child support. This is necessary to provide for creditor protection. 22 This Section protects trust assets from the beneficiary’s creditors.

FIFTH: Except as otherwise specifically provided herein, in addition to the powers conferred by law, my Executor and the Trustee have complete discretion to exercise each of the following powers without authorization from any court, it being my intent that these powers be construed in the broadest possible manner:23

A. To retain any property, real or personal, to carry on any business in which I may have an interest, and to invest and reinvest in any property, real or personal, all as my Executor or the Trustee may determine, without regard to any requirement for diversification;

B. To sell, grant options with respect to, or dispose of, any property, real or personal, for cash or on credit, with or without security, upon the terms that my Executor or the Trustee may determine;

C. To lease any property, real or personal, for any period, upon the terms (including options for renewal) that my Executor or the Trustee may determine, and to improve or take any other action with respect to real property;

D. To permit any income beneficiary (and the guardian of any minor income beneficiary and the family of such guardian) to use any real property or tangible personal property held hereunder for the benefit of the beneficiary, rent free or otherwise, upon such terms as my Executor or the Trustee (other than the beneficiary or guardian) may determine;

E. To borrow money for any purpose, from others or from any Executor or Trustee, with or without security, and to mortgage or pledge any property, real or personal;24

23 This Article grants specific powers to the Executor and Trustee. These are broad powers designed to ensure maximum flexibility in the administration of your estate. 24 While it is unlikely that the Executor may need to borrow money, this power also means that the Executor or others may be reimbursed for funds advanced for the payment of your funeral expenses or other bills that are paid before your Will is admitted to probate.

F. To employ agents, brokers, attorneys, accountants, custodians and investment advisors (including any individual Executor or Trustee), and to treat their compensation as an administration expense;

G. To sell any property, real or personal, from my estate to any trust or from any trust to my estate or from one trust to another;

H. To sell any property, real or personal, to any Executor, Trustee or beneficiary at fair market value;

I. To make loans to any income beneficiary hereunder, interest free or otherwise, upon such terms as my Executor or the Trustee (other than such beneficiary) may determine;

J. To sever any trust into two or more separate trusts having the same terms as the original trust, and to combine two or more trusts having identical terms and beneficiaries (whether or not these trusts resulted from division of a prior trust), at any time and from time to time (whether before or after funding), without approval of any court, for administrative, tax or any other purpose determined by the Trustee to be in the best interests of any beneficiary (including any remainder beneficiary);25

K. To hold the property of any separate trusts as an undivided whole; provided that these separate trusts must have undivided interests; and provided further that no holding may defer the vesting of any estate in possession or otherwise;

L. To allocate administration expenses to income or principal in the proportions that my Executor or the Trustee may determine, to the extent this discretion is permitted under applicable law, without liability to any person for any consequences of this allocation;

25 Paragraphs J through M permit the Trustee to make different tax elections for the various trusts created under your Will.

M. To treat capital gains on the books, records and tax returns of any trust as part of a distribution to a beneficiary of the trust to the extent of principal distributed to the beneficiary;

N. To take control of, conduct, continue or terminate any of my digital accounts on any social networking website, any micro-blogging or message service website or any e-mail website, including, but not limited to, broker accounts, utility accounts, Credit Union and bank accounts, other financial institutions and similar digital accounts related to personal, financial, photographs, medical, tax and real estate, customer affinity programs, and any file storage sites; and

O. To change the situs of any trust at any time and from time to time for the convenience of the beneficiaries or the Trustee or for any other reason; and26

P. To make any distribution or division of property wholly or partly in kind, whether or not pro rata, using specific assets or undivided interests therein.27

SIXTH: Where a party to any proceeding with respect to my estate or any trust has the same interest as a person under a disability, it is not necessary to serve legal process on the person under a disability.28

SEVENTH: All inheritance, estate, transfer, succession or other death taxes (including any interest or penalties) payable by reason of my death with respect to the property

26 A change in situs means a change in jurisdiction or location. For example, if a beneficiary moves to a state that does not have a state income tax, the trust can also be moved to that state. 27 A distribution “in kind” means that the Trustee can distribute an investment directly to a beneficiary. For example, if the trust owns 10 shares of stock in a corporation, the Trustee can distribute the 10 shares directly to the beneficiary rather than liquidating the shares and distributing the cash. 28 This Article permits the Court to waive the appointment of a Guardian Ad Litem (an attorney) for a minor or otherwise disabled beneficiary if a competent adult has the same interest under your Will.

passing under this Will or any property not passing under this Will, shall be paid from my residuary estate.29

EIGHTH: 30A. I appoint my [Gu Relation], [GUARDIAN], to be the Guardian of the person and property of each child of mine who is a minor at the time of my death. If [s/he] fails to qualify or to continue to act, I appoint my [Gu2 Relation], [GUARDIAN], to be such Guardian.

B. I appoint my [Ex Relation], [EXECUTOR], to be the Executor of this Will. If [s/he] fails to qualify or to continue to act, I appoint my [Ex2 Relation], [EXECUTOR2], to be substitute Executor.

C. I appoint my [Tee Relation], [TRUSTEE], to be the Trustee under this Will. If [s/he] fails to qualify or to continue to act, I appoint my [Tee2 Relation], [TRUSTEE2], to be substitute Trustee.

D. No bond (including a bond with respect to the advance payment of commissions or the issuance of Preliminary Letters) or other security is required of any Guardian, Executor or Trustee in any jurisdiction.

E. Any Executor or Trustee may resign by filing a written notice of resignation with the court having jurisdiction of the administration of my estate. In addition, any Executor or Trustee is deemed to have resigned if there is filed in such court a certification in writing from any attending physician of that Executor or Trustee that he or she is no longer able to make decisions with respect to financial matters.

29 This Article concerns the payment of estate tax. The federal estate tax exemption (the amount a person can pass without paying federal estate tax) is $5.45 Million with a 40% tax rate. The New York State estate tax exemption is $3,125,000 through March 2016, $4,187,500 from April 1, 2016 through March 31, 2017, and increases annually through 2019 when it reaches the federal exemption. 30 This Article concerns the Executor and Trustee, provides for the appointment of successor Executors and Trustees and the resignation of Executors and Trustees.

F. To the extent that the exercise of this right does not conflict with the foregoing, each individual acting or designated to act as a Trustee has the right to designate a person to act as a substitute Trustee in the event he or she fails to qualify or to continue to act, provided that no conflicting prior designation is in effect. Any designation of a substitute Trustee shall be made by a duly acknowledged instrument filed with the court having jurisdiction of the administration of my estate. Different Trustees may be designated for separate trusts.31

G. As used in this Will, the term “Executor” means the Executor acting from time to time and any Administrator with the Will annexed.

H. As used in this Will, the term “Trustee” means the Trustee acting from time to time.

IN WITNESS WHEREOF, I have duly executed this Will this ___ day of ___, 20__.

______[Client]

residing at

31 This permits a Trustee to appoint his or her successor in the event no other Trustee is appointed under your Will.

STATE OF NEW YORK ) : SS. COUNTY OF ALBANY )

All of the undersigned, individually and severally being duly sworn, depose and say:

The foregoing Will was subscribed in the presence and sight of all of the witnesses by [CLIENT], the testator, on the ____ day of ______, 20__, at [location where Will is executed], at which time the testator declared the instrument so subscribed to be the testator’s Will. All of the witnesses thereupon signed their names as witnesses at the request of the testator, in the presence and sight of the testator and of each other, and under the supervision of [SUPERVISING ATTORNEY], an attorney-at-law.

______Witness

Severally subscribed and sworn to before me this ______day of ______, 20__.

______Notary Public

WILL OF [CLIENT]32

I, [CLIENT], of [City], New York, do make, publish and declare this to be my Will hereby revoking all prior Wills and Codicils made by me.

FIRST: I give all of my personal effects, household effects, automobiles and other tangible personal property to my spouse, [SPOUSE]; or if my spouse does not survive me, to my children who survive me, to be divided among them as they agree, or if they are unable to agree, then as my Executor determines. Without in any way limiting this gift, I request that my tangible personal property be distributed in accordance with a letter I plan to leave for that purpose.33

SECOND: I give the rest of my property, real and personal, wherever situated, herein called my residuary estate, to my spouse, [SPOUSE]; or if my spouse does not survive me, to my descendants who survive me, per stirpes.34

THIRD: 35 Whenever, under this Will, any property vests in a person who has not attained the age of 21, my Executor, without authorization from any court, shall have the

32 This Will is a sample only. Be sure to prepare based on client’s wishes. Remove footnotes before the Will is executed. 33 This Article provides for the distribution of all personal and household effects after the second death. If you would like certain items to be distributed to particular family members, you should provide specifically so in this Will. While a letter will provide your wishes, it is not legally enforceable. 34 After you are both gone, the rest of your assets will be distributed to your descendants (children and younger generations) on a “per stirpes” basis. “Per stirpes” is a legal term that means the children of a predeceased beneficiary equally share their parent’s inheritance. For example, if [Child] predeceases you, [Child]’s children will equally share [Child]’s interest in your estate.

power to manage such property, may exercise in respect of such property and the income therefrom all powers conferred by this Will on my Executor (and all powers conferred by law on executors) and may hold such property until such person attains the age of 21 upon the following terms:

D. The remaining property shall be distributed to the person when he or she attains the age of 21, or to the estate of the person upon his or her death prior to attaining such age.

35 In the event a minor inherits under your Will, the Executor can hold the minor’s inheritance in trust until the age of 21 or distribute the minor’s inheritance directly to the minor, to the minor’s parent or to a custodial account for the minor. 36 This Article grants specific powers to the Executor. These are broad powers designed to ensure maximum flexibility in the administration of your estate.

B. To sell, grant options with respect to, or dispose of, any property, real or personal, for cash or on credit, with or without security, upon the terms that my Executor may determine;

D. To borrow money for any purpose, from others or from any Executor, with or without security, and to mortgage or pledge any property, real or personal;37

E. To employ agents, brokers, attorneys, accountants, custodians and investment advisors (including any individual Executor), and to treat their compensation as an administration expense;

G. To sell any property, real or personal, to any Executor or beneficiary at fair market value; and

37 While it is unlikely that the Executor may need to borrow money, this power also means that the Executor or others may be reimbursed for funds advanced for the payment of your funeral expenses or other bills that are paid before your Will is admitted to probate.

H. To make any distribution or division of property wholly or partly in kind, whether or not pro rata, using specific assets or undivided interests therein.38

FIFTH: Where a party to any proceeding with respect to my estate has the same interest as a person under a disability, it is not necessary to serve legal process on the person under a disability.39

SEVENTH: A. I appoint my spouse, [SPOUSE], to be the Executor of this Will. If my spouse fails to qualify or to continue to act, I appoint my [Ex 2 Relation], [EXECUTOR2], to be substitute Executor.41

B. No bond (including a bond with respect to the advance payment of commissions or the issuance of Preliminary Letters) or other security is required of any Executor in any jurisdiction.

38 A distribution “in kind” means that the Executor can distribute an investment directly to a beneficiary. For example, if the estate owns 10 shares of stock in a corporation, the Executor can distribute the 10 shares directly to the beneficiary rather than liquidating the shares and distributing the cash. 39 This Article permits the Court to waive the appointment of a Guardian Ad Litem (an attorney) for a minor or otherwise disabled beneficiary if a competent adult has the same interest under your Will as the minor or disabled beneficiary. 40 This Article concerns the payment of estate tax. The federal estate tax exemption (the amount a person can pass without paying federal estate tax) is $5.45 Million with a 40% tax rate. The New York State estate tax exemption is $3,125,000 through March 2016, $4,187,500 from April 1, 2016 through March 31, 2017, and increases annually through 2019 when it reaches the federal exemption. 41 This Article concerns the Executor. Additionally, this Article provides for the appointment of successor Executors and the resignation of Executors.

D. As used in this Will, the term “Executor” means the Executor acting from time to time and any Administrator with the Will annexed.

IN WITNESS WHEREOF, I have duly executed this Will this day of _____, 20__.

______[Client]

residing at

STATE OF NEW YORK ) : SS. COUNTY OF ALBANY )

All of the undersigned, individually and severally being duly sworn, depose and say:

______Witness

Severally subscribed and sworn to before me this ______day of ______, 20___.

______Notary Public

WILL OF [CLIENT]42

I, [CLIENT], of [City], New York, do make, publish and declare this to be my Will hereby revoking all prior Wills and Codicils made by me.

FIRST: I give all of my personal effects, household effects, automobiles and other tangible personal property to my spouse, [SPOUSE]; or if my spouse does not survive me, to my children who survive me, to be divided among them as they agree, or if they are unable to agree or if any of them is a minor at the time of division, then as my Executor determines. Without in any way limiting this gift, I request that my tangible personal property be distributed in accordance with a letter I plan to leave for that purpose.43

42 This Will is a sample only. Be sure to prepare based on client’s wishes. Remove footnotes before the Will is executed. 43 This Article provides for the distribution of all personal and household effects after the second death. If you would like certain items to be distributed to particular family members, you should provide specifically so in this Will. While a letter will provide your wishes, it is not legally enforceable. 44 After you are both gone, the rest of your assets will be distributed to your descendants (children and younger generations) on a “per stirpes” basis. “Per stirpes” is a legal term that means the children of a predeceased beneficiary equally share their parent’s inheritance. For example, if [Child] predeceases you, [Child]’s children will equally share [Child]’s interest in your estate.

held by the Trustee as a separate trust for that descendant (the “Beneficiary”) upon the following terms:45

B. The Trustee shall distribute the remaining principal of the trust to the Beneficiary upon his or her attaining the age of [Age].46

D. Notwithstanding anything herein, any trust created under this Will for any person not in being at the date of my death shall (unless terminated earlier) terminate 21 years after the death of the last to survive of all descendants of my parents and my spouse’s parents in being at such date, and upon such termination the assets of such trust shall be distributed to that person.48

45 This Article establishes a trust for any beneficiary under the age of [Age]. During that time, the Trustee may distribute the trust assets for the beneficiary’s health, support and educational needs. 46 The balance of the trust will be distributed to the beneficiary when he or she attains the age of [Age]. 47 If the beneficiary dies before the age of [Age], the beneficiary’s children will inherit the balance of the trust. If the beneficiary does not have children, the beneficiary’s siblings will share the balance equally. 48 This prevents any trust from violating the Rule Against Perpetuities-- a rule that does not permit trusts to last forever.

FOURTH: 49A. Any property, whether principal or income, distributable to any person under this Will, may be applied for the benefit of that person, including without limitation a distribution to a trust for the benefit of that person. In the case of a minor, the property may be paid or delivered directly to the minor, to a parent or guardian of the minor, to a person with whom the minor resides, or to a custodian for the minor under any Uniform Transfers to Minors Act or similar statute until age 21 or whatever earlier age is the maximum permitted under applicable law.50

49 This Article provides standard terms for administering your Will. 50 If a minor’s inheritance is too small to justify a trust, this permits the Executor to distribute the inheritance directly to the minor, to the minor’s parent or to a custodial account for the minor. 51 The Trustee may take a beneficiary’s income and other resources into consideration, but is not required to do so. 52 A Trustee cannot distribute trust assets to himself or herself or to satisfy the Trustee’s legal obligations, such as child support. This is necessary to provide for creditor protection. 53 This Section protects trust assets from the beneficiary’s creditors.

E. To borrow money for any purpose, from others or from any Executor or Trustee, with or without security, and to mortgage or pledge any property, real or personal;55

54 This Article grants specific powers to the Executor and Trustee. These are broad powers designed to ensure maximum flexibility in the administration of your estate. 55 While it is unlikely that the Executor may need to borrow money, this power also means that the Executor or others may be reimbursed for funds advanced for the payment of your funeral expenses or other bills that are paid before your Will is admitted to probate.

F. To employ agents, brokers, attorneys, accountants, custodians and investment advisors (including any individual Executor or Trustee), and to treat their compensation as an administration expense;

G. To sell any property, real or personal, from my estate to any trust or from any trust to my estate or from one trust to another;

H. To sell any property, real or personal, to any Executor, Trustee or beneficiary at fair market value;

I. To make loans to any income beneficiary hereunder, interest free or otherwise, upon such terms as my Executor or the Trustee (other than such beneficiary) may determine;

56 Paragraphs J through M permit the Trustee to make different tax elections for the various trusts created under your Will.

M. To treat capital gains on the books, records and tax returns of any trust as part of a distribution to a beneficiary of the trust to the extent of principal distributed to the beneficiary;

O. To change the situs of any trust at any time and from time to time for the convenience of the beneficiaries or the Trustee or for any other reason; and57

P. To make any distribution or division of property wholly or partly in kind, whether or not pro rata, using specific assets or undivided interests therein.58

SEVENTH: All inheritance, estate, transfer, succession or other death taxes (including any interest or penalties) payable by reason of my death with respect to the property

57 A change in situs means a change in jurisdiction or location. For example, if a beneficiary moves to a state that does not have a state income tax, the trust can also be moved to that state. 58 A distribution “in kind” means that the Trustee can distribute an investment directly to a beneficiary. For example, if the trust owns 10 shares of stock in a corporation, the Trustee can distribute the 10 shares directly to the beneficiary rather than liquidating the shares and distributing the cash. 59 This Article permits the Court to waive the appointment of a Guardian Ad Litem (an attorney) for a minor or otherwise disabled beneficiary if a competent adult has the same interest under your Will.

passing under this Will or any property not passing under this Will shall be paid from my residuary estate.60

EIGHTH: 61A. If my spouse fails to continue to act as Guardian of the person and property of any minor child of mine, I appoint my [Gu Relation], [GUARDIAN1]; or if [s/he] fails to qualify or to continue to act, I appoint my [Gu2 Relation], [GUARDIAN2], to be such Guardian.

B. I appoint my spouse, [SPOUSE], to be the Executor of this Will. If my spouse fails to qualify or to continue to act, I appoint my [Ex2 Relation], [EXECUTOR2], to be substitute Executor.

C. I appoint my [Tee Relation], [TRUSTEE], to be the Trustee under this Will. If [s/he] fails to qualify or to continue to act, I appoint my [Tee2 Relation], [TRUSTEE2], to be substitute Trustee.

60 This Article concerns the payment of estate tax. The federal estate tax exemption (the amount a person can pass without paying federal estate tax) is $5.45 Million with a 40% tax rate. The New York State estate tax exemption is $3,125,000 through March 2016, $4,187,500 from April 1, 2016 through March 31, 2017, and increases annually through 2019 when it reaches the federal exemption. 61 This Article concerns the Executor and Trustee, provides for the appointment of successor Executors and Trustees and the resignation of Executors and Trustees.

G. As used in this Will, the term “Executor” means the Executor acting from time to time and any Administrator with the Will annexed.

H. As used in this Will, the term “Trustee” means the Trustee acting from time to time.

IN WITNESS WHEREOF, I have duly executed this Will this ___ day of ______, 20__.

______[Client]

residing at

62 This permits a Trustee to appoint his or her successor in the event no other Trustee is appointed under your Will.

STATE OF NEW YORK ) : SS. COUNTY OF ALBANY )

All of the undersigned, individually and severally being duly sworn, depose and say:

The foregoing Will was subscribed in the presence and sight of all of the witnesses by [CLIENT], the testator, on the ____ day of ______, 20___, at [location where Will is executed], at which time the testator declared the instrument so subscribed to be the testator’s Will. All of the witnesses thereupon signed their names as witnesses at the request of the testator, in the presence and sight of the testator and of each other, and under the supervision of [SUPERVISING ATTORNEY], an attorney-at-law.

______Witness

Severally subscribed and sworn to before me this ______day of ______, 20__.

______Notary Public

DRAFTING WILL PROVISIONS

Michael E. O’Connor, Esq.

Costello Cooney & Fearon PLLC Syracuse

DRAFTING WILL PROVISIONS Table of Contents

I. GENERALLY...... MEO - 1

II. CHOICE OF FORMS...... MEO - 1

III. COMPLEXITY...... MEO - 2

IV. WILL VS. REVOCABLE TRUST...... MEO - 2

A. General Treatment...... MEO - 2

B. Revocation of Trust...... MEO - 2

V. GENERAL & SPECIFIC BEQUESTS...... MEO - 3

A. Types of Pre-Residuary Transfers...... MEO - 3

1. Specific Gift...... MEO - 3

a. Ademption...... MEO - 3

b. Anti-Lapse Statute...... MEO - 3

2. General Gift...... MEO - 3

a. Abatement of Dispositions...... MEO - 4

b. Protecting Residue...... MEO - 4

3. Demonstrative Disposition...... MEO - 4

a. Example...... MEO - 4

B. Gifts of Business Interest...... MEO - 5

C. Gifts to Charity...... MEO - 7

1. Tax Considerations...... MEO - 7

a. Charitable Deduction...... MEO - 7

i. IRA Beneficiary...... MEO - 7

ii. Precatory Bequest...... MEO - 7

iii. Bequest of IRD...... MEO - 8 VI. TANGIBLE PERSONAL PROPERTY...... MEO - 8

A. Personal Property...... MEO - 8

B. Specific Bequests of Tangibles...... MEO - 8

C. Drafting Considerations For Tangibles...... MEO - 9

VII. GIFTS OF REAL PROPERTY...... MEO - 13

A. Specific Devise...... MEO - 13

1. Advantages of specific devise of real property...... MEO - 13

2. Disadvantages of specific devise of real property:...... MEO - 13

B. Special Detail...... MEO - 14

C. Life Estate Transfers...... MEO - 14

VIII. ESTATE TAX TREATMENT...... MEO - 16

A. Historic Treatment...... MEO - 16

B. New York Estate Tax...... MEO - 16

C. Planning Approaches...... MEO - 16

D. Planning Options...... MEO - 17

1. Disclaimer...... MEO - 17

2. Limiting Size of Credit Trust...... MEO - 18

3. QTIP Trust ...... MEO - 21

4. Clayton Trust...... MEO - 21

5. Tax Apportionment Clause...... MEO - 22

IX. RESIDUARY GIFTS...... MEO - 23

A. Powers of Appointment...... MEO - 23

B. Trusts for Infants...... MEO - 23

X. FIDUCIARY APPOINTMENTS...... MEO - 25

A. Executor...... MEO - 25 B. Co-Executors...... MEO - 25

C. Executor Compensation...... MEO - 26

D. Alternate & Successor Executors...... MEO - 26

E. Trustees...... MEO - 26

F. Alternate Trustees...... MEO - 27

G. Removal of Trustees...... MEO - 27

H. Trustee Compensation...... MEO - 28

I. Guardians...... MEO - 28

J. Guardian Compensation...... MEO - 29

K. Guardianship After Divorce...... MEO - 29

XI. IN TERROREM CLAUSE...... MEO - 29

DRAFTING WILL PROVISIONS

Michael E. O’Connor Esq Costello Cooney & Fearon PLLC Syracuse, NY 13204

I. GENERALLY

A. Do not simply reduce the client's wishes to writing. Advise on disadvantages of desired provisions. (Expense of administration, vagueness, ruling from grave)

B. Be sure to develop exact extent and nature of assets.

C. Where testator has insurance policies, inquire into alternate beneficiaries, particularly if there are minor children. Infants should not be named beneficiaries.

II. CHOICE OF FORMS

A. Banks provide form books and books are available from publishers.

B. Develop your own forms for common clauses from all sources.

1. Wording will be consistent in all cases.

2. You can reduce those clauses which you use most often to forms so as to save time in Will drafting and avoid remembering when you last used the wording you want.

3. Eliminates extensive dictation, copying and opportunity for mistakes.

4. Reduces stylistic and grammatical differences which would make the Will look like it came from forms.

5. Use word processing to streamline Will drafting and speed it up.

6. BEWARE of blindly following forms however. Each clause in each Will must be considered for appropriateness.

MEO - 1 III. COMPLEXITY

A. Greatest volume of litigation in Surrogate's Court stems from deficiencies in Will drafting or estate planning.

B. Treat potential problems, not just the present problems. For example, if there is any possibility of an infant coming into a share, some provision should be made for handling that share. Do the job, don't save paper.

IV. WILL VS. REVOCABLE TRUST

A. General Treatment: When a revocable trust is used as the centerpiece of an estate plan, it is important that the disposition of property be handled with care. For example, a bequest under a Will would be impossible to carry out if all or substantially all of the client’s assets were held in a revocable trust. It is generally preferable therefore that everything passing to a beneficiary be defined in the revocable trust and not in the Will.

1. Non-dispository language, such as a tax apportionment clause, should be considered between the Will and revocable trust carefully. First, similar provisions should not conflict with one another. Secondly, if tax is being paid from a fund, it should be one arising in the trust rather than under the Will. The Will may pass nothing if the trust is fully funded.

B. Revocation of Trust: Even though a trust is created at the time the Will is signed, and the trust is valid, it may not be at death. In addition to pouring over property from the estate into the revocable trust, the Will should provide an alternative disposition in the event the trust has been revoked. That alternative disposition in the Will would, presumably, be the same disposition as called for in the trust.

1. If the client makes dispositive amendments to the trust, the same amendments should be incorporated in a new Will each time, so as to keep them consistent.

SAMPLE PROVISION - Pour over Will.

XX : All the residue of my estate, both real and personal and wheresoever situate, I give, devise and bequeath to the Trustee of a living trust created under an agreement which I have executed immediately before my execution of this will, which is designated the JOHN DOE TRUST. If the living trust has terminated at my death, or if it is ineffective for any other reason, then I give the residue to my wife, MARY P. CLIENT, if she is living, or if not to my children then living and the issue of any deceased child, per stirpes.

MEO - 2 V. GENERAL & SPECIFIC BEQUESTS

A. Types of Pre-Residuary Transfers: Pre-residuary gifts under a Will generally fall into 3 categories. They are specific, general or demonstrative dispositions.

1. Specific Gift: A gift of personal property or real property owned by the decedent and specifically identified in a devise or bequest is a specific gift. EPTL §1-2.16.

PRACTICE NOTE: The client should be discouraged from disposing of an entire estate by a series of specific bequests. The disposition of a bank account or general securities account is almost always inappropriate. Making such gifts allows an agent under a power of attorney or a guardian to manipulate the estate plan by depositing to or withdrawing from accounts specifically bequeathed. It also allows changes in the dispository plan by the client’s mistake.

a. Ademption: If the decedent does not own the item specifically gifted at the time of death, then the gift fails. EPTL §3-4.3 An exception to this would occur where the specifically gifted property is lost or damaged and insurance proceeds are payable to the estate as a result. EPTL §3-4.5. Or if the committee or conservator of an incapacitated person transfers the specifically gifted property prior to death, in which case, the traceable proceeds pass to the beneficiary. EPTL §3-4.4.

b. Anti-Lapse Statute: When a testamentary benefit is provided for issue or brothers or sisters of a testator, the default rule is that the bequest does not lapse. For instruments executed prior to September 1, 1992, the benefit would pass to the surviving issue of the deceased, per stirpes. EPTL §3-3.3(a)(1). In the case of instruments executed on or after September 1, 1992, the issue of a deceased take by representation. EPTL. §3-3.3(a)(2).

PRACTICE NOTE: While gifts to issue, brothers or sisters may be intended by the client not to lapse, that is not always so. For example, a gift of a specific item of tangible property may be meant exclusively for the benefit of that client. If the intent is for the gift to lapse if the beneficiary dies, it should be specifically stated. Similarly, if a named alternate is intended, it should be stated.

2. General Bequest: A general bequest is a gift of a dollar amount. It comes out of the general estate after payment of tax, debts and expenses of the estate. Since the gift does not look to any specific property, it does not adeem if the nature of the assets change.

MEO - 3 a. Abatement of Dispositions: All of the property of a decedent is subject to payment of administration and funeral expenses, debts of the decedent and taxes which the estate may owe. EPTL. §13-1.3. The expense of the estate obligations are applied to dispositions in the priority provided by the statute. EPTL. §13-1.3(c). The expenses are applied to the following shares until they are fully consumed, at which time the expenses would begin being born by the subsequent share:

i. Distributive shares which pass by intestacy (not disposed of by Will).

ii. Residuary dispositions.

iii. General dispositions.

iv. Specific dispositions.

v. Any disposition to a surviving spouse which qualifies for the estate tax marital deduction.

b. Protecting Residue: Often clients are choosing the amount of general bequests so that the total of such bequests leaves a substantial residue. The residual beneficiary is typically the one of most importance to the client. Consideration should be given to limiting the general bequest by defining it as the lesser of the dollar amount or a percentage of the estate. If the estate shrinks to the point where the general bequest is too large, then the beneficiary would entitled only to the percentage. Alternatively, the residuary beneficiary can be given a general bequest which would assume some priority, if the estate shrinks.

3. Demonstrative Disposition: A demonstrative disposition is a gift of property to be taken out of specific or identified property. EPTL. §1-2.3. Like a specific bequest, a demonstrative gift will fail if the subject property is not owned at death. It also may fail because of the need to use the property to pay the expenses of the estate. In that case however, a demonstrative disposition will have the same priority as a specific gift, thus staying in tact until all general bequests and residuary dispositions have been consumed. EPTL. §13-1.3.

a. Example: An example of a demonstrative gift would be “I direct that all of my shares of General Electric Co. common stock be sold and that the sum of Five Thousand Dollars ($5,000) from such sale proceeds shall be paid to my brother, ROBERT F. SMITH”.

PRACTICE NOTE: It is very rare for a demonstrative gift to be appropriate. It is not uncommon however for a client to

MEO - 4 suggest it. The risk of a demonstrative gift should be pointed out to the client and alternatives explored.

B. Gifts of Business Interest: Special care must be taken in designing the disposition of a client’s business interest.

1. If the business is incorporated, then care must be given to adequately describe the stock being transferred. Is it voting stock only? Is it all stock? If a beneficiary of stock is non-participating in the business, how will he or she be assured of being treated fairly? Is it possible to substitute another asset for the non-participant family member? Could those in control of the business be required to purchase the shares of others over time?

2. If the business is a partnership, what are the terms of the partnership agreement? Can a new partner be admitted? Will the beneficiary want to be a partner?

3. If the client does business as a sole proprietor, then special care must be given to the definition of what will pass to the beneficiary of the business. It is often difficult to define business assets in such a case versus personal assets. If there is inventory, tools and equipment, customer lists, patents or trademarks, vehicles, office equipment and accounts payable, special consideration must be given to each of these assets. The client must determine whether they are necessary for the operation of the business, or whether they could pass other than to the beneficiary of the operating business. Cash contained in business bank accounts must also be considered carefully by the client.

4. If it is necessary for the fiduciary to operate and manage a business for any period of time during estate administration or as an asset of a trust, then it is important that specific authority be given the fiduciary to manage the business and that some method of compensation, apart from fiduciary commission, is allowed for.

SAMPLE PROVISION - Operation of Business.

(A) To retain and continue the operation of any business, either incorporated, unincorporated or limited or general partnership (whether or not income-producing or resulting in lack of diversification) which I may own or in which I may have an interest at the time of my death, and any successor business thereto; and to purchase or otherwise acquire any business or interest in any business (incorporated or limited or general partnership) and to operate the same; and in connection with any business, to have the following authority and to exercise the following powers, as may be deemed advisable: to take part in the management of such business and to delegate such duties, with the requisite powers, to any employee,

MEO - 5 manager, partner or associate, without liability for such delegations; to reduce, expand, limit or otherwise fix and change the operation or policy of any such business and to act with respect to any other matter in connection with any such business; to advance money or other property from my estate or any other source to any such business as may be deemed advisable; to make loans of cash or securities to any such business and to guarantee the loans of others made to any such business; to borrow money for any such business from any lender and to secure such loan or loans by a pledge or mortgage of any part of my estate; to select and vote for directors, partners, associates and officers of any such business; to act as directors, general or limited partners, associates and officers of any such business and to reasonably compensate such directors, partners, associates and officers, including any person who is a beneficiary or fiduciary under this my Will; to establish and to join with others in establishing such partnerships, limited partnerships, corporations and other business organizations and associations for the carrying on of any such business, and to contribute to the capital of such business any part or all of my estate as may be deemed advisable; to deposit securities with a voting Trustee; to enter into stockholders' agreements with corporations in which my estate or any trust estate has an interest and/or with the stockholders of such corporations; to sell any such business, any interest in any such business, or any stock or other securities representing the interest of my estate or any trust estate in any such business; to liquidate, either alone or jointly with others any such business or any or any interest in such business; and generally, to exercise any and all powers as my Executor and Trustee may deem necessary with respect to the continuance, management, sale or liquidation of any such business.

(B) In the event "Subchapter S Corporation" stock is to be allocated to a trust created hereunder and the recipient trust must qualify as a "Qualified Subchapter S Trust" (QSST) or an "Electing Small Business Trust" (ESBT) as defined in the Code, the Trustee shall be authorized to amend the terms of such trust so as to qualify it as a QSST or ESBT, but only to the extent that doing so does not affect the availability of the estate tax marital deduction for such trust.

C. Gifts to Charity: A gift to charity under a Will is not too different from other bequests:

PRACTICE NOTE: In the case of bequest to charity, it is critical that the correct corporate name of the charity be identified and confirmed. If the local organization is an affiliate of a national organization, which is to receive the gift? If there are restrictions on the use of the funds, be clear concerning them. If the restrictions might cause the charity to refuse the gift, be sure that an alternate is provided.

MEO - 6 1. Tax Considerations: If an estate is subject to estate tax, then the property passing outright to charity would be entitled to a charitable deduction, without limitation IRC §2055(a)(2) . Most estates are exempt from estate taxation however, either because the sum of the assets is less than the amount protected from the tax or because a marital deduction will defer the tax until the second spouse dies.

a. Charitable Deduction: Since there is no estate tax due in the typical estate, and because there is no income tax charitable deduction applying to property passing to a charity by Will, there is no deduction for the charitable gift. Further, because the income tax basis on a decedent’s capital assets is “stepped up” to the date of death value, IRC §1014(a) there is no avoidance of capital gain tax resulting from a gift to charity through a Will. A client with a non-taxable estate wishing to leave an amount to charity, should be counseled about alterative approaches which might be more tax efficient.

i. IRA Beneficiary: A client with an IRA or qualified plan may name family members as beneficiaries. Those family members could receive the benefits of the plan subject to both estate tax (if the estate passing other than to a spouse is large enough) and income tax (in all cases). Even a non- taxable estate would result in income tax being due on all funds in such a plan as they pass out to the beneficiaries. If the client wishes to benefit a charity under a Will, and has a non-taxable estate, a good suggestion would be to name the charity as an IRA beneficiary instead. The amount passing to the charity would escape income taxation completely. The family members, on the other hand, who no longer are IRA beneficiaries could receive an equivalent increased amount from the estate, not subject to income taxation.

ii. Precatory Bequest: Another approach in the non-taxable estate to generate an income tax deduction arises from the use of a precatory bequest to a trusted relative. In such a case, the relative is given an amount of money and requested (not directed) to contribute that amount to charity. The individual beneficiary then makes a voluntary contribution which entitles him or her to an income tax deduction for the gift to charity. The following is suggested language to accomplish this:

SAMPLE PROVISION: “If my wife MARY X. SMITH survives me, I give and bequeath the sum of Ten Thousand Dollars ($10,000) to her. It is my wish and hope, but I do not direct, that she make a donation in

MEO - 7 my memory to CORNELL UNIVERSITY, Ithaca, New York. If my wife does not survive me, I give such amount to that organization for its general uses and purposes.”

iii. Bequest of IRD: A third option to maximize income tax savings is to direct that an asset constituting Income in Respect of a Decedent (IRD) be used to satisfy the bequest. For example, a client with substantial taxable interest from US Series EE savings bonds might leave those (or their proceeds) directly to a charity so that the IRD ends up passing to the non-taxable entity.

VI. TANGIBLE PERSONAL PROPERTY

A. Personal Property: Personal property is generally divided into two major categories. Tangible personal property is that which is “used” and has an intrinsic value. Intangible personal property is simply evidence of a value. For example, furniture would be tangible property, but a stock certificate would be intangible. No statute specifically defines tangible personal property and case law must be looked to when certain assets might be tangible or intangible. Examples of problematic assets are cash, coin or currency collections and collectible stamps.

B. Specific Bequests of Tangibles: It is almost always good practice to provide for the specific disposition of tangible personal property. The reasons are many:

1. Often tangible personal property, like household furniture, has very little market value and may be difficult to dispose of at more than a nominal price.

2. While tangible property often has very little economic value, it can have substantial sentimental value to those family members closest to the decedent. Forcing the sale of such property would often be contrary to the desires of the family members.

3. It may be advantageous for an estate to be capable of trapping taxable income at the estate level, so as to protect it from income taxation totally by use of estate deductions or to make use of the lower brackets of the estate. To accomplish that objective, it is necessary to control distributions of the estate which would carry Distributable Net Income (DNI) with it. A distribution from the residue of an estate carries DNI out to the beneficiaries. IRC §662(a)(2). The distribution of a specific bequest does not. IRC §663.

4. If a trust is created from the residue of the estate, and if tangibles are not specifically bequeathed, the Trustee would be obligated to dispose of them and make the proceeds income producing, unless specific language to the contrary is provided authorizing retention of such tangibles.

MEO - 8 5. If, on the other hand, the Trustee retains tangibles, how will the Trustee keep them under his control or in his possession? They should be insured in the name of the trust, which will be difficult or impossible to accomplish.

C. Drafting Considerations For Tangibles:

1. When tangibles are left to a class (such as children), should the anti-lapse statute be allowed to replace a deceased child with grandchildren? If the tangibles are of more emotional value than economic value, the question would be whether that emotional value applies only to the children or would be applicable to a grandchild. If the grandchildren are infants, the inclusion of one in the distribution of tangibles would complicate matters in that the infant would not be able to consent to or receipt for distributions personally. Most often in such a case therefore, the distribution of routine tangibles will be per capita rather than by representation or per stirpes.

2. What can be done if the intended beneficiaries of tangibles would not be expected to agree on their disposition, or if the beneficiaries do not get along with one another at all? Depending upon who has been named as Executor, authority may be given to that Executor to distribute the tangibles among the beneficiaries, using the Executor’s discretion. In the alterative, some mechanism may be established in the Will for the beneficiaries to select items by lot or by bid.

3. The client may wish to provide for the disposition of tangibles in a separate writing (apart from the Will). New York law does not provide for the incorporation of an outside document by reference into a Will. An approach which can be used in New York would be a bequest of the tangibles to a single trusted individual with a precatory request that the individual distribute those items in accordance with the wishes of the client which will be provided in a separate writing. Because the assignment is so personal to the beneficiary under the Will, it is important that the anti-lapse statute not apply to this bequest.

4. Special consideration should be given to very valuable tangibles. Does the client want expensive jewelry and the automobile passing to children equally?

5. Special consideration should be given to tangible personal property used in conjunction with a business or some other special purpose. For example, farm equipment would typically best be passed to whomever receives the farm animals or land. A boat and motor would be useful to the person receiving lake front real estate.

6. Since title to specifically bequeathed personal property vests at death in

MEO - 9 the beneficiary, the costs of storing, shipping and insuring such property would be the beneficiary’s. This result can be reversed if the client wishes, with the estate being directed to pay those costs out of the general estate assets.

7. Avoid describing tangibles as “contents of my house” or other such terms. This will allow fraud to be practiced by moving tangibles after death, or before.

SAMPLE PROVISIONS - Tangibles to spouse - alternate adult children:

XX : To my wife, MARY P. SMITH, if she survives me, I give and bequeath all of my tangible personal property, which shall mean all property that is not real estate and whose value is its own substance or uniqueness, such as furniture, jewelry or a coin collection. It does not include cash, books, documents or other papers which are only evidence of intangible property rights such as bank accounts, stock certificates, promissory notes, insurance policies, and the like. If my wife fails to survive me then such property shall pass equally to those of my children who survive me.

SAMPLE PROVISIONS - Tangibles to beneficiary with precatory request to distribute:

XX : To ______(personally, and not in a fiduciary capacity), I give and bequeath all of my tangible personal property, which shall mean all property that is not real estate and whose value is its own substance or uniqueness, such as furniture, jewelry or a coin collection. It does not include cash, books, documents or other papers which are only evidence of intangible property rights such as bank accounts, stock certificates, promissory notes, insurance policies, and the like. It is my wish, but I do not direct that the beneficiary will distribute such property in accordance with my instructions, which I shall provide during my life. If ______fails to survive me, then I give such property to ______with the same request.

DRAFTING NOTES: A clause such as this one allows the client to make elaborate lists and to revise them periodically, without the need of revising the Will. Unlike many other states, there is no provision in New York law allowing incorporation of an outside list into a Will, by reference. The above language might be a useful substitute for that concept. The risk of the beneficiary not carrying out the client’s wishes must be pointed out. If there are tangibles which have substantial economic value, consideration should be given to excluding them from a clause such as this. Automobiles, jewelry and art work might better be disposed of specifically. An alternate beneficiary is also useful so as to prevent the anti-lapse statute from passing the tangibles to the children of

MEO - 10 the intended beneficiary. In the alternative, consider language requiring the beneficiary to be living to receive the bequest.

SAMPLE PROVISIONS - Tangibles to children with direction to select by lot:

The tangible personal property described above shall be divided among my children in approximately equal shares. If the children do not all agree on such division, I direct that they shall choose items individually in order of age, with the oldest child choosing one item first, followed by the second oldest and so on, until all items are selected or until the children have no interest in taking more items. For purposes of this paragraph, sets of items shall be considered single items. For example, a set of matched silverware, a set of matched dishes or a table and chair set shall each be treated as one item. If such a formal procedure is used, the Executor shall first have such items appraised, and the appraisal value of each item shall be the charge to the share of the child who chooses it. Any items not chosen by any child shall be disposed of by the Executor in whatever manner seems reasonable. Adjustments between the beneficiaries for items which have greater or lesser value than those selected by other beneficiaries may be made from the residuary share of each under this Will.

SAMPLE PROVISION - Tangibles to spouse, or if deceased to children, with formal procedure for disposition and equalization of value for each:

XX To my wife, MARY P. SMITH, if she survives me, I give and bequeath all of my tangible personal property, which shall mean all property that is not real estate and whose value is its own substance or uniqueness, such as furniture, jewelry or a coin collection. It does not include cash, books, documents or other papers which are only evidence of intangible property rights such as bank accounts, stock certificates, promissory notes, insurance policies, and the like. If my wife fails to survive me then such property shall pass equally to those of my children who survive me, subject however to the following:

(A) It is my intent that the items of tangible personal property owned by me at my death will be distributed among my children fairly and consistent with their wishes, to the extent possible. It is also my wish that the economic value received by each will be approximately equal. To accomplish this objective, I direct that either my children reach unanimous agreement on the disposition of the tangible personal property or, in the alternative, that the Executor use the following procedure in order to dispose of such property:

(1) The Executor shall first obtain an appraisal of the fair

MEO - 11 market value of each item of my tangible personal property, except that items of little value may be assigned only a nominal dollar value.

(2) Upon receipt of the appraisal, a copy will be provided to each of my children. With each of them present (or with each of their representatives present), they shall be allowed to select items which they wish to receive, with the oldest child choosing first, followed by the second oldest, and so on. Each child may select one (1) item at each round of the selections. For purposes of this Article, sets of items shall be considered single items. For example, a set of matched silverware, a set of matched dishes, or a table and chair set shall each be considered one (1) item. The selection will continue until all children have chosen everything they wish to.

(3) After the completion of the selection process, as described above, there may be remaining items which one or more children have an interest in receiving, but which they do not believe to be worth the appraised value. If that is the case, each of my children may institute an auction of any remaining item. Each child will be entitled to bid, and the child who bids the greatest amount will be entitled to receive the item. All such bidding shall be open and will continue until there is a winner.

(4) The Executor shall record the value of each item selected by each of my children, either from its value on the appraisal or, if not selected in that stage, then its value from the auction. If the value of the items selected by one child is less than his or her equal share of the total of all such items, then cash shall be paid from the general estate to that beneficiary to make up any difference. If the value of such items is greater than the child’s equal share, then cash will be paid from the general estate to those other children who received less than their equal share, so as to make the distribution of tangibles equal among all children.

(5) Any items not selected in the above process shall be disposed of by the Executor in accordance with any method agreed to unanimously by all of my children. If there is no such agreement, then the remaining items shall be disposed of in a commercially reasonable manner. Items which have no reasonable sale value may be donated to charity or given to grandchildren or more remote descendants of mine. Any net proceeds from the sale of any such property shall become part of the value being distributed to my children pursuant to this Article.

MEO - 12 VII. GIFTS OF REAL PROPERTY

A. Specific Devise: For a number of reasons, it may be desirable for a client to specifically devise real property. For example, a primary residence may be devised to a spouse in order to prevent it passing into a trust. A seasonal residence may be devised to some or all of the children to facilitate its being retained long into the future.

1. Advantages of specific devise of real property:

a. Vest title immediately in the beneficiary.

b. Eliminates the asset from being used to compute the commission of the Executor.

c. Gives priority to the devise over property passing in the residue.

d. Avoids any part of the real property being deemed as income and carrying out income earned in the estate. IRC §662 & §663.

2. Disadvantages of specific devise of real property:

a. If the beneficiary does not want the property, it is no longer possible to sell it as an estate asset and distribute it with the residue.

b. An Executor may sell real property owned as part of the residue of the estate without it being subject to liens of the beneficiaries. Specifically devised real property however would be subject to such liens.

c. Unless specifically provided otherwise, the beneficiary will take the real property subject to liens and mortgages. EPTL§3-3.6.

B. Special Detail: Real property should be described with as much detail and specificity as possible. Try to avoid over-broad descriptions such as “all my real estate, wherever located”. Such language raises the question of whether it is intended that all forms of real property (such as leases, partnerships, cooperative apartments, real estate investment trusts and condominiums are to be included). Such broad language also would pass property acquired after the Will is made, such as an inheritance from another.

1. At least the street address of the property, with municipality and county, should be provided. Better practice is to refer to the deed(s) by which title was taken, a tax map number or even the legal description.

2. Often with a devise of a vacation home, the client desires to include the furniture and other tangibles in the gift. Use of the word “contents” as defining tangibles to be included should be avoided. During the period the

MEO - 13 client is occupying the property, there may be valuable jewelry or other property which is not necessary for the operation of the real property and not intended to be included with it. Specificity in defining the tangibles to go with real property is critical. Consider language such as “together with all furniture, rugs, appliances, dishes, silverware, art work permanently maintained in the property and tools necessary for the maintenance and operation of the property”.

3. Beware of the anti-lapse statute causing an infant to become an owner of an interest in real property. If the objective is to provide ownership to pass through multiple generations, a trust should be considered instead of a specific devise.

4. Out of state property creates special concerns. The probate of a Will in New York does not give authority to an Executor to administer or dispose of real property in another state. Such authority must be gotten by the ancillary probate of the Will in the state where the property is located.

a. To avoid the complications of ancillary probate, it may be helpful to have it pass other than by the Will. This can be accomplished by putting the property in joint ownership, by conveying it to a revocable trust or partnership or by deeding it to the ultimate beneficiaries with a life use retained by the client.

C. Life Estate Transfers: On occasion, a client will wish to grant use of real property to someone for life, with the remainder passing to others. It is used primarily where there are not sufficient funds available to create a trust with the property and other assets to pay for its maintenance and operation.

1. If the life beneficiary fails to maintain the property and pay the taxes, the remaindermen may be adversely affected. This type of transfer is very difficult for the remaindermen to adequately monitor what is going on with such property, and it may be lost before they know there is a problem. A devise of real property for life is an approach which should be used sparingly, and only when there are no other alternatives available.

SAMPLE PROVISIONS - Language for Devise of Life use of Real Property:

XX : To WINONA SMITH (beneficiary), if she survives me, I give and devise the real property located at 123 Main St., Pristine Forest, NY 12345 in the County of St. Lawrence and State of New York, together with all appurtenances and improvements used in connection therewith. Such devise shall, however, be only for the period of the beneficiary's life, or until she ceases to use the property

MEO - 14 as her principal residence, whichever occurs first.1 If she fails to reside in the said property for a continuous period of one hundred eighty (180) days, she will be deemed to have changed principal residence, and her interest therein shall terminate.

(A) The beneficiary shall be required to pay all costs of maintenance, assessments, insurance premiums, taxes, water charges, and repairs to the property. Upon failing to pay any such charge, any one or more of the remaindermen may pay the same, and in such event, the person or persons shall be entitled to reimbursement from the beneficiary, and shall have a lien against the property for the amount so expended plus interest at nine (9%) percent per annum. If the property is sold to a bonafide purchaser for value, such lien shall be deemed extinguished as to the real property, but shall follow the proceeds, payable first from the beneficiary's share of the proceeds, if any.

(B) The beneficiary shall obtain and keep in force a policy of insurance (at her own expense) with sufficient fire insurance coverage to represent the replacement value of all structures from time to time; and personal injury liability coverage in a minimum amount of $150,000. Such policy shall include the remaindermen as additional insureds.

(D) Upon the termination of the interest of the beneficiary in the said property, I give and devise it to my then living children, equally per capita and not be representation.

(E) If any beneficiary under this Article is a minor, the property distributable to the minor may be delivered to the guardian or other person with whom the child resides, without further responsibility to the child. Any cash proceeds due a minor may be paid or held as otherwise provided under the terms of this Will.

VIII. ESTATE TAX TREATMENT

A. Historic Treatment: Historically, the amount protected from the federal estate tax did not change dramatically, and then, beginning with 2001 federal tax reform, it did change frequently. Since it has gone back to a relatively static credit equivalent, changed only by inflation.

1 This provision would prevent the estate tax martial deduction if the life beneficiary is a spouse. QTIP trusts require interest for life, and no shorter period.

MEO - 15 B. New York Estate Tax:

1. New York has a complex estate tax “protection” which is beyond the scope of this outline. For deaths after March 31, 2016 and until March 31, 2017, the exemption equivalent in New York is $4,187,500. For deaths on April 1, 2017 and for the following 12 months the exemption becomes $5,250,000. After December 31, 2018 the New York exemption will become equal to the federal exemption, including inflation adjustments going forward.

2. Difficulties arise under the New York estate tax when the taxable estate exceeds the New York exemption. When that occurs the protection from the exemption begins to disappear, causing high marginal rates for New York tax (even above 100%) for the amount exceeding the exemption.

C. Planning Approaches: Because of the dramatic changes in the federal estate tax exemption and the possibility of a substantial New York estate tax being applied even if a spouse survives, estate tax planning requires more careful attention. Boilerplate provisions can not be depended on to solve the problem with one approach for all.

1. For those with a combined family estate of $5,400,000 or only slightly more, the avoidance of federal estate tax in the next few years will be quite easy, because the federal exemption will exceed the family wealth.

2. Special care must be taken to avoid paying a substantial New York estate tax in an effort to avoid a federal estate tax which may not apply any longer. Flexibility in planning becomes most important.

D. Planning Options: There are several drafting alternatives which could be used to protect against estate tax exposure in this uncertain time.

1. Disclaimer: For several years, it has been common to incorporate use of the disclaimer into a Will so as to allow a surviving spouse to choose whether a credit trust should be created to protect the estate tax exemption, and if so, how large that trust should be. This planning technique becomes even more important as the uncertainty of the tax intensifies.

SAMPLE PROVISION - Disclaimer in Wills:

XX: All the residue of my estate, whether real or personal and wheresoever situate, I give, devise and bequeath to my wife, MARY P. CLIENT, if she survives me. In the event my wife validly disclaims all or any part of this legacy, I direct that the disclaimed interest shall pass pursuant to Article XXX hereof and that my wife may enjoy such interest provided her thereunder.

The provisions of New York Estates, Powers and Trusts Law,

MEO - 16 Section 2-1.11, or any similar subsequent New York statute concerning renunciation or disclaimer shall control, regardless of my domicile at death. A disclaimer which would be sufficient in form and manner of service thereunder shall be deemed sufficient for my estate.

XXX: In the event my wife fails to survive me, or having survived me, disclaims all or part of her legacy under this Will, I give, devise and bequeath all of the undisposed portion or residue of my estate, whether real or personal and wheresoever situate, including any part of the bequest to my wife under Article XX which she may have disclaimed, as follows:

(A)(1) If my wife survives me, all of the property passing under this Article shall pass to the Trustee, hereinafter named, IN TRUST, to invest and reinvest the same, to collect and receive the income therefrom, and to pay or apply the income not less frequently than quarterly to or for my wife.

(2) I authorize my Trustee, at any time and from time to time, to invade the principal and to distribute such amounts to or for the benefit of my wife. Such invasions may be made whenever the Trustee determines it to be appropriate to provide for the support, education, health and maintenance of my wife during her life.

(3) Upon the death of my wife, the trust shall terminate and the Trustee shall transfer the remaining trust principal, together with any accrued income to such of my descendants as would share in the residue of my estate if my wife had failed to survive me and I had died immediately following her death (pursuant to (B) following).

(B) If my wife fails to survive me then the residue shall pass to my surviving children and the living descendants of any deceased child, per stirpes.

2. Limiting Size of Credit Trust: Pre-residual credit shelter trusts have traditionally been defined as holding the greatest amount which can pass free of federal estate tax. Such language would create a New York estate tax potentially. If it is appropriate for the client to avoid that tax, it may be desired to limit the amount of the credit trust to the amount which can pass free of New York estate tax. This would cause the credit trust to float with the New York exemption, but would eliminate the possibility of federal estate tax at the first death. If it is likely that the surviving spouse would not have an estate later sufficient to generate a federal estate tax, this may be a good solution.

SAMPLE PROVISION - Limited Credit Shelter Provision - Medicaid

MEO - 17 Protected:

XX: (A) If my wife survives me, I give and bequeath an amount equal to the largest amount, if any, by which my [New York] taxable estate (determined before giving effect to this Article XX) may be increased without causing an increase in the [New York] estate tax payable by reason of my death, to the Trustee hereinafter named.

(B) The Trustee shall receive such property IN TRUST, for the following uses and purposes: To hold, manage, and invest the property, to collect the income thereof and to pay over or apply so much or all of the net income, to or for the benefit of my wife and any living descendant of mine from time to time, to such extent, in such amounts or proportions, equal or unequal, and to the exclusion of any of them, and at such time or times, as the Trustee (other than any then eligible income beneficiary), in the exercise of absolute discretion, shall deem advisable. Any net income not so paid or applied shall be accumulated and added to the principal of the trust at the end of each calendar year.

(C) In addition, the Trustee shall be authorized at any time to pay over to or apply for the benefit of any then eligible income beneficiary, out of the principal of the trust, any amount, including the whole thereof, as the Trustee, other than any then eligible income beneficiary, in the exercise of absolute discretion shall deem advisable, without limitation. Without in any way limiting the absolute discretion given the Trustee, it is my intention that my wife be considered the primary beneficiary of the trust and that her present and future needs be given primary consideration.

Payments of income or principal for any beneficiary shall only continue, however, subject to the provisions of paragraphs "1" and "2" following. This trust is created to supplement, not replace any and all available public benefits and entitlements, and to supplement the support of a beneficiary. It is intended to allow a beneficiary to live independently or at home in reasonable comfort. It is the intent of this Will that the trust's income and principal is not to be considered income to, nor assets of any beneficiary for any purposes as stated in statute, rules or regulations of any governmental unit, agency or department.

(1) In applying the income or principal for the benefit of a beneficiary, the Trustee shall have absolute discretion to pay to or apply the income or principal to provide for the needs of such beneficiary over and above basic maintenance, support, medical, and dental care, paid for by any local, State or Federal government or agency or department thereof. Nothing herein shall preclude the

MEO - 18 Trustee from purchasing those services and items which promote the beneficiary's happiness, welfare and development, including but not limited to, vacation and recreation trips away from place of residence, expenses for a traveling companion (if requested), entertainment expenses, clothing, transportation costs, education and training costs, medical, dental and insurance needs. Under no circumstances shall my Trustee exercise discretion to utilize funds for the payment of such services that would otherwise be borne by any publicly funded program. There shall be no invasion of principal for the benefit of any beneficiary of this trust ordered by any court pursuant to EPTL §7- 1.6(b) or any other provision of law.

(2) The income and the principal of the trusts established under this Will shall not in any way or manner be subject to or liable for any of the debts, contracts, engagements or liabilities of the respective beneficiaries thereof, and shall not be liable to anticipation, sale or pledge, nor subject to attachment, execution or sequestration under any legal, equitable or other process of law.

(D) My wife shall have the power to appoint any part or all of the principal of the trust property to any or all of my lineal descendants and to impose such additional trusts or conditions as she deems appropriate, except that no appointment shall be made to my wife, her estate, her creditors, or the creditors of her estate. The exercise of this power of appointment shall be made in her Will and by specific reference to this power. To the extent the power is not validly exercised, then the trust property shall pass according to the terms of this Will. If the Trustee has not received actual notice of the existence of a will of my wife within 90 days of her death, and if no such will has been offered for probate in the appropriate court, then the remainder of this trust may be distributed as if such power had not been exercised, and the Trustee shall be released from any liability for distributing pursuant to the provisions of this Will.

(E) In computing the amount to pass pursuant to this Article, the final determination in the federal estate tax in my estate shall control. The value of assets used to satisfy this bequest shall be the value of such assets on the date of distribution, but the total value of all assets so distributed shall be the amount calculated to pass under this Article. To the extent such assets are available for this purpose, this trust shall be funded with assets which are ineligible for the marital deduction under the federal estate tax, and assets which are not productive of income. To the extent practicable, I direct that this legacy not be satisfied with assets which are items of gross income in respect of a decedent such as individual retirement accounts or qualified pension or profit sharing plans.

(F) I recognize that the amounts passing to the

MEO - 19 Trustee under this Article may be partially reduced or totally eliminated by nondeductible gifts and the payments of certain estate taxes and charges required by other provisions of this Will and that such amount may be affected by determinations or elections made by my Executor or in the exercise of discretion under this Will or under the provisions of the Internal Revenue Code.

(G) The trust shall terminate upon my wife's death, or when the trust property has been exhausted, and, subject to the valid exercise of the power of appointment granted her under "D" of this Article, the remaining principal shall pass to those individuals, and in those proportions, as my residuary estate would pass under Article XXX hereof, if I had died immediately after my wife's death.

3. QTIP Trust: Structuring a residuary provision of the Will or the terms of a trust to receive the maximum amount protected by the federal credit to qualify for QTIP election (marital deduction) would allow an Executor to partially elect QTIP so as to prevent New York estate tax. Unlike the limitation in the last paragraph, there would be some flexibility to pay a tax if it appeared after death that it would be advantageous.

A. The ideal solution to the QTIP election would be if New York allowed a separate QTIP election to be made just for New York tax purposes. In this way, both the federal and New York estate tax credits could be optimized with any resulting tax being paid at the second death. At this time, there is no proposal to enact a New York specific QTIP, because of a concern that the surviving spouse would leave the State of New York after the first death, causing the state to never receive its tax at the second death.

4. Clayton QTIP: The Clayton QTIP is a variant of a single divisible QTIP. In planning for the Clayton QTIP, two trusts would be created under the Will or trust agreement. One trust would not be eligible for the marital deduction and might have sprinkling income and principal among family members. The second trust would provide all income to the spouse and would be qualified for the marital deduction. The allocation of the assets between the two trusts is controlled by the share of the estate which the Executor elects to qualify for QTIP treatment. Whatever the Executor does not qualify for the marital deduction would automatically go to the nonqualified trust. This technique is approved in IRC Reg. 20-2056(d)(3).

a. The advantage of the Clayton approach is that the non-qualified trust can be designed in any way the client wishes, increasing flexibility. As the QTIP election does not have to be made until the extended due date of the return, then there are 15 months, rather than the 9 months available for a disclaimer.

b. The disadvantage of the Clayton election is that a fiduciary

MEO - 20 (Executor) is making disposition decisions over the client’s property. The inherent conflict of interest of the spouse if he or she is the Executor (or any other beneficiary who is Executor) suggests that an independent party should be making that election. Many clients are hesitant to give dispositional control of their estates to anyone other than a spouse or, occasionally, a child. In the case of a second marriage, the surviving spouse might have to elect against the Will, or risk the Executor electing QTIP in such a way that the spouse has little or no benefit because all is in the credit trust. The Executor can wait until the time to elect has expired, and then allocate the property by the QTIP election.

5. Tax Apportionment Clause: The payment of estate tax should be provided for. For example, client usually wants tangibles to pass free of tax contributions. It is typical to charge the tax against the residue of the estate, rather than apportioning it.

a. If client owns a large IRA or life insurance policy passing to beneficiaries or joint accounts passing, should the estate tax on these assets pass free of tax, but reducing or even eliminating the residue with the burden of estate tax?

b. Following is language to charge the estate tax or probate assets to the residue of the estate, but to otherwise apportion tax on non- probate property pursuant to statute.

SAMPLE PROVISION - Tax Apportionment.

XX : All estate, inheritance, succession, transfer and other death taxes, including any interest and penalties thereon, paid to any domestic or foreign taxing authority, with respect to all property taxable by reason of my death, whether such taxes be payable by my estate or any recipient of any such property shall be charged against and paid without apportionment out of my residuary estate; provided, however, that any non-probate property which is included in my estate for estate tax purposes shall bear its proportionate share of all such taxes to the extent any such property generates a tax by reason of my death.

c. Following is language to charge tax on probate assets to the residue, but to protect any charitable share from bearing that tax:

SAMPLE PROVISION - Charitable Share.

MEO - 21 such taxes be payable by my estate or any recipient of any such property shall be charged against and paid without apportionment out of that portion of my residuary estate for which no charitable deduction is allowed for federal estate tax purposes; provided, however, that any non-probate property which is included in my estate for estate tax purposes shall bear its proportionate share of all such taxes to the extent any such property generates a tax by reason of my death.

IX. RESIDUARY GIFTS

A. Powers of Appointment: A power of appointment may be created under any Will or trust. If the client is a beneficiary of such a power, then it is important for the attorney to know that and to consider whether the power should be exercised or not. Knowledge of such a power is critical even if it is drafted in such a way that specific reference to the document which is the source of the power must be made in order to effectively exercise it.

1. If a power of appointment is held by the client, and if the terms of the instrument created that power does not require specific reference in order to exercise, then the residuary clause of the client’s Will can exercise it. EPTL §10-6.1 (a)(4).

PRACTICE NOTES: If there are powers of appointment unknown to the client, or if the client expects to be a beneficiary of multiple family trusts, then it may be advantageous to specifically provide that no powers of appointment are intended to be exercised by the terms of the Will.

B. Trusts for Infants: An issue of primary importance to younger clients is the protection of their underage children in the event of both parents dying. The financial concerns fall into two categories. First, the clients wish to protect the needs of their youngest children until they are “out of the nest”. Once all of the children have reached adulthood, the second priority is to treat them all equally.

1. In order to provide for the needs of the youngest, it is most often desirable to keep the funds together in a single trust so that they can be applied for the needs of the youngest without concern about equality. This is referred to as a Sprinkling Trust or a Pot Trust.

2. After the children have reached adulthood, or typically when the youngest has had an opportunity to complete an undergraduate education, the preferred approach is to divide the trusts so that each has a separate fund. This prevents the needs of one adult child from consuming the share of another. The ultimate outright disposition to the individual child can then be tailored to the desires of the client. Where the children are very young, so that the parent does not know how they will turn out, or when the children are older and the parent is not totally satisfied with how they turned out financially, multiple distributions may improve the chances that

MEO - 22 the child will use the benefits more responsibly, or at least some of them.

SAMPLE PROVISION - Gift of residue to spouse with alternate to children. (Sprinkling to 21 and Distribution at 30/35):

XX : All the rest, residue and remainder of my estate, both real and personal and wheresoever situate, I give, devise, and bequeath to my wife, MARY P. CLIENT, if she survives me.

(A) If my wife does not survive me, and I leave no child under 21 years of age, I give all the residue of my estate in equal shares to my living children, and the issue of any deceased child, per stirpes, subject however to the provisions of Article XX hereof.

(B) If my wife does not survive me, and if any of my living children (including any afterborn child) is under 21 years of age, I give the residue to the Trustee, hereinafter named, IN TRUST, to invest and reinvest the same, to collect, receive and accumulate the income therefrom, and to pay or apply said income and the principal in the sole and uncontrolled discretion of the Trustee, for the support, maintenance, health, education and cost of a wedding of my children and the descendants of any child who dies (whether before or after my death) as their respective circumstances may indicate, without regard to inequality among the beneficiaries in respect of sums so paid or applied, even to the extent of exhausting the entire principal. It is my wish that priority be given to the needs of my children who have not reached the age of 21 years. The trust shall continue until such time as there is no living child of mine under 21 years, whereupon the trust shall terminate and the remaining principal, together with all accumulated or accrued income shall be divided among my then living children and the then living descendants of any deceased child, per stirpes, subject to the provisions of Article XX hereof.

XX : In the event any beneficiary under this Will is under the age of 35 years at the time he or she becomes entitled to a principal share hereunder (even at the conclusion of a trust hereunder), I direct that the amount due such person be paid to or retained by the Trustee, IN TRUST, to invest and reinvest the same, to collect, receive and accumulate the income therefrom, and to pay or apply said income and the principal, in the sole and uncontrolled discretion of the Trustee for the support, maintenance, health, education or cost of a wedding of said individual as his or her circumstances may indicate, even to the extent of exhausting the entire principal. For all purposes of this Will, education expenses shall include the costs of tuition, room, board and transportation expenses for college, post-graduate programs, private primary or secondary schools and occupational training programs. Upon the beneficiary reaching the age of 30 or upon creation of this trust if the beneficiary

MEO - 23 has already reached that age, an amount equal to one half of the value of the property held for such beneficiary shall be distributed to the beneficiary. The trust shall continue until such time as the beneficiary reaches the age of 35 years or sooner dies, whereupon the trust shall terminate and the remaining principal together with all accumulated or accrued income shall be paid to the beneficiary, if living, or to his or her Executor or administrator if deceased.

X. FIDUCIARY APPOINTMENTS - The fiduciaries commonly appointed in a Will are Executor, Trustee and Guardian of an infant.

A. Executor: An Executor can be any natural person or an institution authorized to be a fiduciary, so long as the individual is not an infant, incompetent, a non- domiciliary alien, a felon or unable to fulfill the duties due to “drunkenness, dishonesty, improvidence or want of understanding”. SPCA § 707.

1. The most commonly appointed Executor is the beneficiary who is entitled to the largest share. Such an individual would be most likely to waive the statutory commission. If the commission is not waived, then it would be passing to the person who would have received the same benefit as an inheritance anyway. If there is no single predominant beneficiary, then the next most frequently chosen individual is one of several residuary beneficiaries. That person should have the client’s absolute trust, as well as the respect of the other beneficiaries.

Often when there is no candidate from among the beneficiaries to act as Executor, the client will choose a friend or professional advisor (accountant or attorney). A corporate fiduciary can also be designated.

2. Conflicts of interest must be considered in the selection of Executors and other fiduciaries. For example, a business partner might be very close to the client and trusted, but after the death of the client the partner might have personal interests which are in conflict with those of the estate. An attorney should be careful to draft his or her own appointment only in those circumstances where the selection is in the best interest of the client.

B. Co-Executors: Frequently when there are two equal beneficiaries, Co-Executors will be considered. If the primary beneficiary is not comfortable handling the assignment of Executorship, there may be a Co-Executor to help him or her. A Co-Executor may also be useful where the estate will hold assets requiring specialized knowledge. An example of this would be the estate of an author or painter. In such a case, the duties of the Executors can be divided by specific drafting, so that the Executor with specialized knowledge handles only those assets requiring it.

1. Where Co-Executors are designated, there can be difficulties encountered. For example, certain documents must be signed by each Executor, and delay can result from having to circulate to each and possibly in different

MEO - 24 parts of the country. Multiple Executors also cause multiple compensation to be paid.

C. Executor Compensation: The statutory commission for an Executor is provided at SPCA §2307. If the commissionable estate amounts to less than $100,000, then only one commission is paid, regardless of how many Executors may act together. If the estate is $100,000 or more, but less than $300,000, up to two commissions can be divided among multiple Executors. If the commissionable estate is $300,000 or more, then three commissions can be divided among three or more Co-Executors.

1. The Will can provide any specific compensation plan the client would like. For example, a family Co-Executor might be prohibited from taking any commission, while a professional Co-Executor is allowed a full commission, regardless of how small the estate is.

a. It is not good practice to name two individuals as Co-Executors who do not get along with each other. Such a situation tends to make more court involvement necessary and frequent. It does not encourage the efficient settlement of the estate, and may be a circumstance where an Executor from outside the family would be appropriate to consider.

D. Alternate & Successor Executors: Depending upon the age of the client and other circumstances, it is important to have one or more alternate or successor Executors designated for the possibility of the original appointees being unable or unwilling to serve through the whole estate administration. If no alternate is named, then an Administrator CTA (with Will annexed) will be designed. SPCA §1418. An Administrator CTA would be subject to the requirement of a bond and the selection of the fiduciary could be the cause for dispute among the beneficiaries. If there are no alternates agreeable to the client, then a suggestion should be made that the primary appointee be given authority to select his or her own successor. SPCA §1418 (1).

E. Trustees: The legal requirements to serve as a Trustee are the same as those of an Executor. SPCA §707. Because the term of the trust can be very long, the mortality of individuals becomes a factor in selection of Trustees. It can be very disruptive to a trust to have a Trustee become incapacitated so as to be unable even to resign. It is therefore more common to see corporate fiduciaries used as Trustees than as Executors.

1. The duties of a Trustee fall into two major categories. First, the Trustee is responsible for investment of the trust funds so as to generate income and/or growth for the trust beneficiaries. Secondly, the Trustee must make decisions about distributions, particularly those distributions which are made in the discretion of the Trustee. For this reason, it is common to have Co-Trustees designated on family trusts. One Trustee would be chosen because of skills in managing the assets or the ability to seek out adequate

MEO - 25 managers. Another Trustee would be chosen because of familiarity with the family and understanding of the circumstances each beneficiary will be in.

F. Alternate Trustees: It is even more important that alternates be designated as Trustee, because the term of the trust is likely far longer than the term of the estate administration.

G. Removal of Trustees: A Trustee can become inappropriate after the passage of time, even though that individual or institution was an appropriate choice initially. For example, the sole beneficiary of a trust created in New York might live his or her adult life in California. A California Trustee would become more appropriate. A Trustee might become senile or otherwise incapacitated with age, but be unwilling to resign. The Trustee might even lose touch with the family members who are beneficiaries, and be incapable of adequately performing the duties expected. For all of these reasons, and others not mentioned, it is useful to provide the flexibility to replace a Trustee, even against the Trustee’s wishes.

1. Giving the beneficiary the right to replace the Trustee can have substantial tax disadvantages. For example, a trust which is created to prevent the inclusion of the trust principal in the beneficiary’s estate, when the beneficiary dies, could suffer tax inclusion if the beneficiary is given discretion to remove the Trustee and appoint another, particularly where distributees can be made without an ascertainable standard.

2. The client may be hesitant to give authority to remove a Trustee to a beneficiary also because of the client’s distrust of the beneficiary’s judgment. It is possible to select an independent individual who has authority to remove a Trustee and appoint another. This would solve the tax problem created by the beneficiary having the power and also might satisfy the client that the beneficiary would not misuse the power. An example of such a power follows:

I hereby appoint ______of ______as the Trust Protector. The Trust Protector is authorized, in the exercise of absolute discretion, to remove any and all Trustees acting hereunder (other than my wife), to designate successor Trustees in their place and to appoint co-Trustees; provided, however, no Trust Protector may appoint as Trustee himself or herself, any relative or employee of a Trust Protector, or any person who has a beneficial interest in any trust hereunder or who is married to, related to or employed by any person who has such a beneficial interest. The Trust Protector also is authorized, in the exercise of absolute discretion, to designate, by instrument in writing delivered to the Trustee, a successor Trust Protector to act if there is not a Trust Protector otherwise appointed hereunder who is willing and capable of serving, and to revoke any such designation before it becomes effective. Any successor Trust Protector shall have all the powers of the initial Trust Protector.

MEO - 26 I am not imposing any fiduciary responsibility on the Trust Protector to monitor the actions of the Trustee or otherwise. Except for any matter involving the Trust Protector's own individual willful misconduct or negligence proved by clear and convincing evidence, no Trust Protector shall incur any liability by reason of any error of judgment, mistake of law, or action of any kind taken or omitted to be taken hereunder if in good faith reasonably believed by such Trust Protector to be in accordance with the provisions and intent hereof. The Trust Protector shall not be liable for failure to remove any Trustee even if cause exists. Each trust existing hereunder shall indemnify the Trust Protector against all costs of legal proceedings which involve the Trust Protector, including legal fees.

H. Trustee Compensation: An individual Trustee is entitled to commission computed at the statutory rates provided in SCPA §2309. As with Executors, if there are multiple Trustees, then there may be multiple commissions payable, depending upon the size of the trust. SCPA §2309 (6). As with executorial commissions, the Will can provide for specific compensation for a Trustee, or for an alternate method of computing it.

1. Unlike an individual, a corporate Trustee will be entitled to such commissions as “may be reasonable” in the trust value exceeds $400,000. SPCA §2312 (2). If drafting for a corporate Trustee, it is important that the proposed Trustee have an opportunity to review the document. Most will want specific language concerning commissions. Typically, a minimum commission will be called for, no matter how small the trust becomes.

I. Guardians: Guardians of a minor child’s person are responsible for the child’s upbringing. They take over the role of the parents. Guardians of a child’s property are charged with protecting, preserving and managing the property of the infant. SPCA §1723. The Court has power over the property of an infant. SCPA §1701. An annual account is required of the Guardian and no payments can be made from Guardian funds without authorization by the Court.

1. When the client has selected a Trustee in whom the client has confidence, it is the objective of the planning process to prevent any funds from falling into a court supervised Guardianship. Rather, all assets left for the benefit of any infant would be best contained in trust. Even with careful drafting, funds can come into ownership of an infant, particularly if the infant is named specifically as an alternate beneficiary of life insurance, an IRA or some other type of beneficiary account.

2. A client with multiple children will be concerned about the ability of the Guardian to care for those children. There may also be a concern with keeping all of the children in a single household. Further, the client may be concerned about the financial burden being put upon the Guardian in taking on this assignment.

MEO - 27 SAMPLE PROVISION: The following is sample language for lifting the financial burden for Guardianship. Such language might not be appropriate if the Guardian and sole Trustee are the same individual:

(A) I am relying upon the Guardian of the person of my children to take care of them. This will result in increased living expenses for her and may require her to buy a larger home or to add to the house in which she already lives. It is my wish that the shouldering of the burden of my children should not cost her anything, and I therefore authorize and direct my Trustee to pay any amounts to her for any added out-of-pocket expense resulting from her doing so, even though, as in the case of an addition to the Guardian's existing house for the purpose of housing my children, the expense may be of direct benefit to her. My Trustee shall make such payments out of the trust.

(B) My Trustee shall be under no duty to seek, nor the Guardian to make, repayment for any benefit she may receive hereunder.

(C) My Trustee shall be entitled to rely upon statements of fact made by the Guardian in arriving at the amount of any payment made hereunder, without any further verification.

J. Guardian Compensation: A Guardian of the property is entitled to the same compensation as an Executor. SCPA §2307 (1). If income is received and paid over, the Guardian is entitled to annual commissions at the principal rate. SCPA §2307 (4). As with other compensation, the Will can provide some specific alternative compensation. SCPA §2307 (5).

K. Guardianship After Divorce: Even though a deceased was the custodial parent, he or she cannot appoint a Guardian that will take priority over the surviving, non- custodial parent. DRL §81. An ineffective appointment results in the appointee becoming a donee of a power to manage property during minority, subject to all of the provisions of the Guardianship statute. SCPA §1714. The effect of such an appointment is to leave management of the property of the infant in the hands of the person selected by the client, rather than the surviving parent of the infant.

XI. IN TERROREM CLAUSE: When the client is concerned that one or more of the distributees will contest the will, a solution may lie in an In Terrorem Clause which takes away the benefit left to any contesting distributee. Such clauses are strictly and narrowly construed. It is not possible to prevent an incompetent or infant from contesting by such a clause. EPTL §3-3.5(b)(2). Further, the effectiveness of the clause is proportionate to the size of the bequest which would be forfeited. The greatest protection comes where a substantial benefit would be lost by the distributee who chooses to contest.

A. The following is language which could be used to discourage a contest:

MEO - 28 ______: In the event that any beneficiary named herein shall, directly or indirectly, under any pretense or for any cause or reason whatever, oppose the probate of my last Will and Testament, or institute, abet, take or share, directly or indirectly, in any action or proceeding against my estate to impeach, impair, set aside, or invalidate any of the provisions of my Will, or make any agreement, direct or indirect, in connection with any of the foregoing, with any person instituting, abetting, taking or sharing in such action directly or indirectly, I do hereby revoke any and all devises, bequests, trusts, or other provisions to or for the benefit of any such person, and I direct that any such devises, bequests, trusts, or other provisions, to or for the benefit of any such person, shall become part of my residuary estate, except that if such person shall be entitled to share in or benefit from my residuary estate, then the share of such person shall be disposed of as if such person had predeceased me, without leaving issue surviving him or her. Any beneficiary who makes or attempts to make any inquiry about the Will, other than those permitted by EPTL 3-3.5 and SCPA, 1404 shall forfeit his or her share of the estate.

Revised: January 18, 2016

MEO - 29

SAMPLE OF A REVOCABLE TRUST

Karin Sloan DeLaney, Esq. Baldwinsville NY

DECLARATION OF TRUST 1

JOHN CLIENT TRUST 2

THIS DECLARATION, made the ______day of November, 2015 by JOHN H. CLIENT, of 123 Main St., Syracuse, NY 13202 (hereinafter referred to as "Grantor" and "Trustee");

W I T N E S S E T H :

1. TRUST PROPERTY. The Grantor has this day delivered the property described in Schedule "A", attached hereto, to the Trustee and does hereby transfer ownership of such property.3 The Trustee agrees to act as Trustee of such assets and to hold, administer and distribute the property, together with all additions thereto and all reinvestments thereof, as the principal of a trust estate for the benefit of Grantor in accordance with the terms and provisions hereinafter set out.

1 Since the abolishment of the merger doctrine, an individual may create a trust with his own assets and act as sole Trustee. If the document establishing such an entity involves only one party, it would not be an agreement, but a declaration. If any other party is acting as Trustee other than the Grantor, then the trust would be created by agreement.

2 It is possible to structure a trust so that it will hold the property of both husband and wife (joint trust). Extreme care shall be taken to avoid numerous issues that can arise in a joint trust such as determining which spouse contributed which property, how separate property and/or joint property are distributed and how marital, estate tax exemption and asset protection trusts are funded at death. Joint trusts can also cause inadvertent tax consequences. See TAM 9308002 regarding the loss of basis step-up in a joint trust. Further, significant complications can arise if the couple divorces. There are many traps for the unwary in a joint trust. Practitioners should consider the creation of two (2) separate trusts for each spouse to avoid these potential ambiguities and pitfalls.

3 EPTL §3-3.7 authorizes a standby trust to be created, which would be funded in the first instance at the death of the Grantor. EPTL §7-1.18 addresses the funding requirements for a trust. While a standby trust can be created if there is a second party Trustee, it cannot be unfunded if the Grantor acts as sole Trustee. In that case, some funding must occur.

The assets making up the trust should be actually transferred to it. Simply a statement of assets to make up the trust is not sufficient. Further, although a pour over will serves to fund the trust at death, the will must be probated to achieve this. Therefore, if avoidance of probate is a primary reason for utilizing the revocable trust, the trust must be funded prior to death to achieve this goal.

Grantor or his attorney-in-fact may add property to the principal of this Trust at any time. It is anticipated that upon the incapacity of the Grantor to handle his financial affairs, the attorney-in-fact will transfer substantially all of the Grantor's remaining assets to this Trust.

2. GRANTOR'S RIGHTS. The Grantor expressly reserves the right at any time upon written notice to the Trustee:

(A) To withdraw all or any part of the principal free and discharged of the terms and conditions of this Declaration and of the Trust except as to terminating commissions if due; such right of withdrawal being personal to Grantor and not exercisable by any court, attorney-in-fact, guardian, conservator or committee; and 4

(B) To revoke or amend this Declaration,5 and to alter or terminate the Trust created; provided however that the duties, responsibilities and rate of compensation of a Trustee shall not be altered or modified by such amendment without the written consent of the Trustee. A Trustee may be replaced, however, by an amendment, without cause. At Grantor's death, this trust shall become irrevocable.

3. DISPOSITION. (A) The Trustee may accumulate, or pay or apply the income of the trust to or for the use of Grantor during his life, or to such persons and in such proportions as the Grantor may from time to time direct. In addition, the Trustee may at any time, in the exercise of absolute discretion, pay from the principal of the trust such amounts as the Trustee may deem advisable to provide adequately for the support, maintenance, education and comfort of the Grantor.6

4 Consider limiting the ability to withdraw trust property to the grantor and the trustee. Providing a withdrawal right to an attorney in fact or guardian may result in abuse and unwanted estate tax consequences.

5 If a Trust does not specifically state that it is revocable, then it irrevocable. EPTL §7-1.16.

6 In furtherance of planning for nursing home admission or for other reasons, it may become appropriate for the Grantor to make gifts to his beneficiaries. Since the property in the trust is not in the hands of the agent under a power of attorney, the power cannot be used to carry out the gifting. Some authority should be given to the Trustee, either to carry out the gifting directly, or in the alternative, to transfer property back to the agent, so that gifting can be made through the power of attorney. Consider broadening the gifting power in the durable power of attorney.

(B) Unless sooner terminated as provided in this Declaration, the trust shall terminate upon the death of the Grantor, and upon his death the remainder shall be paid to those of Grantor's nieces and nephews who survive Grantor, per capita. If no nieces or nephews survive Grantor, then the remainder shall pass to Syracuse University, to be added to its Scholarship Endowment Fund.

(C) If any beneficiary under this Declaration dies within thirty (30) days after Grantor's death, the bequest to that beneficiary shall be divested by his or her death, and that property shall be disposed of pursuant to the provisions of this Declaration as if the beneficiary had not survived.

4. INVESTMENT AND MANAGEMENT.

In addition to the powers conferred upon Trustees by law, the Grantor authorizes the Trustee, in the exercise of absolute discretion, with respect to any property, real or personal, at any time held under any provision of this Declaration, including accumulated income and any stock of any bank or trust company acting in any fiduciary capacity hereunder (or any stock of any corporation which owns any stock of any such bank or trust company), and without authorization by any court:

(A) Retain Trust Estate. To retain for such time as the Trustee may deem advisable, without liability for loss resulting from such retention, the original assets and all additional trust property, although the property so held may not be of the character, type, quality, or diversity prescribed by law or by the terms of this instrument as proper for investment of trust assets, and although such property represents a large percentage or all of the trust estate;

(B) Hold Uninvested Cash and Unproductive Property. For any periods deemed advisable, to hold cash uninvested, even though the total amount so held is disproportionate under trust investment law or would not be permitted without this provision, and to retain or acquire and hold unproductive realty or personalty, except as may be otherwise provided by this Declaration.

(C) Acquire and Allow Use of Unproductive Property. To acquire real property or tangible personal property, such as homes, art work, jewelry, furniture and vehicles, and to allow any beneficiary hereunder the use of such property free of any rental payment, and for so long as the Trustee shall deem appropriate, in the exercise of absolute discretion.

(D) Invest and Acquire. To invest and reinvest trust assets in any type of property or security, including stock market margin accounts, without regard to the proportion that investments of the type selected may bear to the entire trust estate, without limitation to the classes of trust investments authorized by law, and without regard to the possibility that the investment may be in new issues or in new or foreign enterprises. The property acquired may be realty or personalty and may include life insurance, bonds, debentures, leaseholds, options, easements, mortgages, notes, mutual funds, investment trusts, common trust funds, voting trust certificates, and any class of stock or rights to subscribe for stock, regardless of whether the yield rate is high or low or whether or not the new asset produces any income at all. It is intended that the Trustee shall have the authority to act in any manner deemed in the best interest of the trust involved, regarding it as a whole, even though certain investments considered alone might not otherwise be proper.

(E) Exercise Options and Conversion Privileges. To exercise any options, rights and conversion privileges pertaining to any securities held by the Trustee and trust assets.

(F) Sell and Lease. To sell, convey, grant options to purchase, lease, mortgage, transfer, exchange or otherwise dispose of for any purposes and at any time prior to making final distribution, any or all assets of the trust including real property, for prices, upon terms and conditions and in a manner as may be deemed advisable; to execute and deliver deeds, leases, bills of sale, and other instruments of whatever character, and to take or cause to be taken all action deemed necessary or proper in connection therewith.

(G) Lend. On any terms deemed advisable, to lend trust funds to any borrower including, but not limited to, the executor or administrator of Grantor's estate or a beneficiary of any trust, hereunder, and to change the terms of such loans. This authorization includes the power to extend such loans beyond maturity, with or without renewal, and without regard to the existence or value of any security, to facilitate payment of such loans, to change the interest rate thereof, and to consent to the modification of any guaranty relating thereto. Notwithstanding the above, no loan shall be made to the Grantor, except if each such loan is adequately secured and bears interest at prevailing commercial rates.

(H) Borrow. To borrow whatever money the Trustee may deem desirable for any trust on any terms from any lender, including the Trustee and the personal representative of Grantor's estate, and the Trustee or beneficiary of any other trust, by whomsoever created, and to mortgage, pledge or otherwise encumber as security any assets of the borrowing trust.

(I) Change Term or Duration of Obligation. Incident to the exercise of any power, to initiate or change the terms of collection, or of payment of, any debt, security or other obligation of or due to the trust estate, upon any terms and for any period, including a period beyond the duration or termination of any or all trusts.

(J) Compromise or Abandon Claims. Upon whatever terms the Trustee deems advisable, to compromise, adjust, arbitrate, sue, defend, or otherwise deal with any claims, including tax claims, against or in favor of any trust; to abandon any asset the Trustee shall deem of no value or of insufficient value to warrant keeping or protecting; to refrain from paying taxes, assessments or rents, and from repairing or maintaining any asset; and to permit any asset to be lost by tax sale or other proceeding.

(K) Distribute in Cash or in Kind. To distribute any shares in cash or in kind, or partly in each, whether or not pro rata among the beneficiaries, and without regard to the income tax basis of specific property allocated to any beneficiary. The Trustee's valuations of assets upon making distribution, if made in good faith, shall be final and binding on all beneficiaries.

(L) Use Nominees. To hold any or all of the trust assets, real or personal, in a Trustee's own name, or in the name of any corporation, partnership or other person as the Trustee nominates for holding the assets, with or without disclosing the fiduciary relationship.

(M) Bid In or Take Over Without Foreclosure. To foreclose any mortgage, to bid in the mortgaged property at the foreclosure sale or acquire it from the mortgagor without foreclosure, and to retain it or dispose of it upon any terms deemed advisable.

(N) Vote Stock. To vote stock for any purpose in person or by proxy, to enter into a voting trust and to participate in corporate activities related to any trust in any capacity permitted by law, including service as an officer or director.

(O) Participate in Reorganizations. To unite with other owners of property similar to any held in trust in carrying out any plan for the consolidation, merger, dissolution, liquidation, foreclosure, lease, sale, incorporation, reincorporation, reorganization or readjustment of the capital or financial structure of any association or corporation in which any trust has a financial structure of any association or corporation in which any trust has financial interest; to serve as a member of any protective committee; to deposit trust securities in accordance with any plan agreed upon; to pay any assessments, expenses or other sums deemed expedient for the protection or furtherance of the interests of the beneficiaries hereunder; and to receive and retain as trust investments any new securities issued pursuant to the plan, even though these securities would not constitute authorized trust investments without this provision.

(P) Purchase Property From Estate. To purchase property, real or personal, from a Grantor's or any other person's estate upon such terms and conditions as to price and terms of payment as the Trustee and the respective representatives shall agree upon; to hold the property so purchased in trust although it may not qualify as an authorized trust investment except for this provision, and to dispose of such property as and when the Trustee may deem advisable.

(Q) Employ Assistants and Agents. To any extent reasonably necessary, to employ attorneys-at-law, accountants, tax specialists, brokers, investment counselors, realtors, managers for business, farms, ranches, groves and forests, technical consultants, attorneys-in-fact, agents and any other consultants and assistants the Trustee deem advisable for the proper administration of the trust estate and to make such payments therefor from income or principal as the Trustee may determine.

(R) Establish and Maintain Reserves. Out of the rents, profits or other gross income received, to set aside and maintain reserves to the extent deemed advisable to meet present or future expenses, including taxes, assessments, insurance premiums, debt amortization, repairs, improvements, depreciation, obsolescence, general maintenance and reasonable compensation for services, including services of professional and other employees or agents, as well as to provide for fluctuations in gross income and to equal or apportion payments for the benefit of beneficiaries entitled to receive income.

(S) Carry Several Trusts as One Estate. To the extent that division of the trust estate is directed by this instrument, to administer the Trust estate physically undivided until actual division becomes necessary to make distributions; to hold, manage, invest and account for whole or fractional trust shares as a single estate, making the division by appropriate entries in the books of account only; and to allocate to each whole or fractional trust share its proportionate part of all receipts and expenses; provided, however, this carrying of several trusts as a single estate shall not defer the vesting in possession of any whole or fractional share of a trust for a beneficiary at the time specified in this Declaration.

(T) Divide Trust. The Trustee may divide the property administered into two or more separate trusts for any reason, using absolute discretion, including the allocation of Grantor's generation skipping tax exemption.

(U) Continuation of Powers. All of the rights, powers, duties, authority, privileges and immunities given to the Trustee by this Declaration shall continue after termination of the trust and until the Trustee shall have made actual payment of distribution of all trust property.

(V) Allocation to Principal/Income. The Trustee, other than a Trustee interested in the trust, shall be authorized to allocate receipts and disbursements of the trust to principal or income as the Trustee shall designate.

(W) Renunciation of Powers. The Trustee, or any single Trustee if there are more than one acting, may renounce or otherwise surrender any power granted such Trustee in this Declaration, including a power to make discretionary distributions to any beneficiary. Such renunciation shall apply only to the Trustee making it. The renunciation must be in writing and delivered to all other acting Trustees and the Grantor (if living). When such a renunciation has been made, the power so surrendered shall not be available to any successor to the Trustee so renouncing. The renunciation shall be effective immediately upon execution by the Trustee.

(X) Termination of Trust. The Trustee may terminate any trust hereunder when its fair market value has declined to the extent that it becomes uneconomical, imprudent or unwise to continue. In such event, the remainder shall be paid to or applied for the benefit of the then income beneficiaries, equally.

5. PROVISIONS FOR MINORS AND INCOMPETENTS

(A) Notwithstanding any of the other provisions of this Declaration, if any trust principal shall at any time be or become payable under any provision of this Declaration to a minor, an incompetent, or person under disability, such property shall vest in absolute ownership in such person, but the Trustee shall be authorized, in the exercise of absolute discretion and without authorization by any court: (1) To defer payment or distribution of the whole or any part of such property and to hold and invest the whole or the undistributed portion thereof as a separate share for such minor or incompetent with all the powers and authority set forth in this Declaration and to accumulate and invest the whole or any part of any income therefrom with the same powers and authority; and

(2) To pay, distribute or apply the whole or any part of such property or any income therefrom for the care, comfort, maintenance, support (except as otherwise provided herein) education, use or other benefit of such minor or incompetent, or to pay any amount to such person (other than the Grantor) as the Trustee shall designate as custodian for such minor under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act of any jurisdiction, all without regard to whether or not the same is currently needed, used or applied for the benefit of such minor or incompetent, any balance thereof to be paid or distributed to such minor when such minor reaches the age of twenty-one (21) years or to such incompetent at any time or, the receipt of the person or persons to whom any such payment is so made being a sufficient discharge therefor even though the Trustee may be such person.

(B) Notwithstanding any of the other provisions of this Declaration in which the Grantor authorizes the Trustee to pay or distribute any income to any beneficiary (whether or not a minor or incompetent), the Trustee shall nevertheless be authorized, in the exercise of absolute discretion, to apply the whole or any part of such distribution for the care, comfort, maintenance, support (except as otherwise provided herein), education, use or other benefit of such beneficiary instead of distributing the same to such beneficiary, by making payment or distribution of such income in the manner provided in subparagraph (2) of paragraph "A" of this Article. (C) Notwithstanding any other provision of this Declaration, no payments, distributions or applications of income or principal shall be made (directly or indirectly) to any beneficiary in satisfaction of any person's legal obligation to support such beneficiary.

(D) The authority conferred upon the Trustee by paragraph "A" of this Article shall be construed as a power only and shall not operate to suspend the power of alienation or the absolute ownership of any property by a minor or incompetent or prevent the absolute vesting thereof in a minor or incompetent.

(E) The Trustee shall be entitled to receive compensation with respect to any property held pursuant to the provisions of paragraph "A" of this Article at the same rates as though

the Trustee held such property as a testamentary Trustee.

6. ESTATE TAXES. 7 All estate, inheritance, succession, transfer and other death taxes, including any interest and penalties thereon, but excluding any additional tax imposed by Chapter 13 (Generation Skipping Transfer Tax) or Section 2032A (Special Use Valuation) of the Internal Revenue Code or corresponding provisions of state law, paid to any domestic or foreign taxing authority, with respect to all property taxable by reason of Grantor's death, whether such taxes be payable by Grantor's estate or any recipient of any such property and whether or not such property passes under this Declaration or Grantor's Will, shall be charged against and paid without apportionment out of the general trust estate; provided, however, that any non-probate property which is included in Grantor's estate for estate tax purposes and which does not pass under this Declaration shall bear its proportionate share of all such taxes to the extent any such property generates a tax by reason of Grantor's death. 8

Any tax (including any interest and penalties thereon) imposed by reason of Chapter 13 or Section 2032A of the Internal Revenue Code or corresponding provisions of state law, with respect to property passing under this Declaration or otherwise, shall be paid out of the property to which such chapter or section applies.

7 Consistency is critical in regard to the source of funds from which estate tax would be paid. If this provision is contained in the Grantor’s will, and there is no probate property, the will might need to be probated in order to trigger the provision. Even if it does, the direction would be better placed in the revocable trust agreement or declaration.

8 In the larger estate, beware of the consequence of charging estate tax attributable to non-probate assets to a general probate estate, or to the assets in the pour-over revocable trust. This language forces the non-probate property to bear its own proportionate estate tax.

7. CONCERNING THE TRUSTEE.9

(A) Alternate Trustee. (1) SUSAN P. SUBSTITUTE is hereby designated as alternate Trustee, to take office upon a vacancy, or to become Co-Trustee upon determination of the acting Trustee or upon one of the events described below in subparagraph (2). If at any time the office of Trustee is vacant, or if there is no alternate designated and able to act, the current Trustee or Trustees may appoint, in the exercise of absolute discretion, such one or more individuals and/or a bank or trust company to act as Trustee or Trustees.

(2) Upon the happening of whichever of the following events shall first occur, all of the powers and duties, discretionary or otherwise, of the primary Trustee shall vest in and be exercised by the alternate Trustee, without the necessity of judicial intervention:

(a) The voluntary resignation of a Trustee as the primary Trustee, either by personal election or by the election of his agent under a valid power of attorney; or

(b) The determination of a physician who has primary responsibility for the medical care of the primary Trustee, in consultation with the Grantor’s children, that the Trustee is unable to handle his financial affairs for any reason; or

(d) Upon the death of the Trustee.

(3) No Trustee, nor alternate Trustee shall be under any duty to institute any inquiry into the possible incapacity of a primary Trustee, but the expense of any such inquiry reasonably instituted may be paid from trust assets.

(B) Acceptance. The acceptance of trusteeship by any Trustee not a party to

9 Consider the appointment of a Trust Protector and the parameters for the Trust Protector’s role. Caution should be used to limit the Trust Protector’s powers in order to prevent abuse and an unwanted battle of fiduciaries.

10 See: In the Matter of Chiaro, 2010 NY Slip Op 20215 (NY. Sup. Ct. 5/12/2010) for a discussion of the limitation of the power to amend a trust by an Article 81 property management guardian. this document shall be evidenced by an instrument in writing delivered to the Grantor, or if deceased, to the legal representatives of Grantor's estate.

(D) Account. No Trustee acting hereunder shall be under a duty to render a judicial account periodically, or upon resignation, or otherwise, provided, however, that the expenses of any accounting for a resigning Trustee shall be a proper charge against the trust estate.

(E) Charges. The separate trust hereunder shall be chargeable with and may pay without application to any court:

(1) The reasonable expenses of the Trustee in the administration of such trust, including the fees and expenses of such agents, attorneys, accountants and advisors as the Trustee may employ in the administration of such trust; and

(2) Reasonable compensation for the services rendered and responsibilities assumed by each of the Trustees in the administration of such trust.

(F) Resignation. Any Trustee may resign from office without leave of court at any time and for any reason. Such resignation shall be made by instrument in writing, duly acknowledged, and delivered in person or by registered mail to the Trustee, or, if there is no Trustee then in office, to each Grantor, if then living, or, if not then living, to the legal representative of the Grantor's estate.

(G) Singular/Plural. Wherever the term "Trustee" is used in this Declaration, it shall be deemed to refer to the Trustee or Trustees acting hereunder from time to time.

8. ALIENATION. No disposition of, or charge or encumbrance on, the income or principal of the trust or any part thereof by any beneficiary under this Declaration, by way of anticipation, shall be valid or in any way binding upon the Trustee, and no beneficiary shall have the right to assign, transfer, encumber or otherwise dispose of such income or principal or any part thereof until the same shall be paid or distributed to such beneficiary by the Trustee. No income or principal or any part thereof shall in any way be liable to any claim of any creditor of any such beneficiary. No court shall order payment of trust property pursuant to New York Estate Powers and Trust Law (EPTL) §7-1.6 or otherwise. It is the intent of this Declaration that only the Trustee shall determine when, and in what amounts principal or income shall be paid.

9. CHANGES BY WILL. This trust may not be amended or revoked by the provisions of any will or codicil of Grantor pursuant to EPTL §7-1.17(b).

10. LAWS OF NEW YORK TO CONTROL.

(A) The Grantor is currently a resident of the State of New York, and all questions pertaining to the validity, construction, effect and administration of this Declaration shall be determined by and in accordance with the laws of the State of New York.

(B) The situs of any trust created hereunder may be maintained in any jurisdiction, in the absolute discretion of the Trustee, and thereafter transferred at any time to any other jurisdiction selected by the Trustee. Upon any such transfer of situs, the trust estate may thereafter, at the election of the Trustee of said trust, be administered exclusively under the laws of (and subject, as required, to the exclusive supervision of the courts of) the jurisdiction to which it has been transferred. Accordingly, if the Trustee of any trust created hereunder elects to change the situs of any such trust, the Trustee shall hereby be relieved of any requirement of having to qualify in any other jurisdiction and of any requirement of having to account in any court of such other jurisdiction.

11. MISCELLANEOUS

(A) Paragraph Headings. The paragraph headings used are for convenience only and shall not be resorted to for interpretation of this trust. Whenever the context so requires, the masculine shall include the feminine or neuter, and vice versa, and the singular shall include the plural and vice versa.

(B) Validity of Provisions. If any portion of this trust is held to be void or

unenforceable, the balance of the trust shall nevertheless be carried into effect.

(C) Effective Date. This Declaration and the trust hereby created shall become effective upon the execution of this Declaration by Grantor and a Trustee.

(D) Waiver. The Grantor specifically waives the right to revoke or amend the terms of this Declaration by the terms of Grantor's will, as provided in Estates Powers & Trusts Law Section 7-1.16.

IN WITNESS WHEREOF, the Grantor has executed this Declaration as of the day and year first above written.11

John H. Client, Grantor and Trustee

STATE OF NEW YORK ) ) ss.: COUNTY OF ONONDAGA )

On the _____ day of November, 2015 before me, the undersigned, a Notary Public in and for said State, personally appeared JOHN H. CLIENT, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

11 Effective December 25, 1997 and applicable to lifetime trusts created on or after that date, §7-1.17 sets forth the execution requirement for lifetime trusts. They must be in writing and executed and acknowledged by the grantor and at least one trustee (unless the Grantor is the sole trustee) in the manner required for the recording of a conveyance of real property. In lieu thereof, the trust can be witnessed by two witnesses.

While SCPA §1407 provides a mechanism for proving lost or destroyed wills and testamentary trust, there is no similar mechanism for a lost inter vivos trust document. The courts handle these situations on a case by case basis allowing extrinsic evidence where appropriate. See: In the Matter of the Proceeding for Determining the Status of Real Property Concerning the Estate of Eureka Greene, Deceased, and the Greene Trust, Sur. Ct, Kings County, March 14, 2013, Lopez-Torres, M., No. 2011/2194/A.

LIFETIME GIVING

AND

INTER VIVOS GIFTS

ANNE C. BEDERKA, ESQ.

Greenfield Stein & Senior LLP New York, NY Updated and Co-Authored by JOANNE BUTLER, ESQ.

Shipman & Goodwin Greenwich, CT

INTER VIVOS GIFTS

I. GIFTS NOT SUBJECT TO TAXATION

A. TAXATION OF GIFTS: BASIC PRINCIPLES

1. Tax Exclusive Nature of Inter Vivos Gifts. It has been a long-standing tenet of trusts and estates practice that lifetime gifts offer a greater tax benefit than transfers at death. There are two primary reasons for this. First, lifetime gifts are taxed on a “tax exclusive” basis, meaning the transferor pays gift tax only upon the amount of the actual gift, and not upon the amount of the gift tax paid. (In contrast, transfers at death are taxed on a “tax inclusive” basis -- estate tax is paid both upon the property transferred to the beneficiaries and upon the amount paid to the taxing authorities.) Second, a lifetime gift removes from the transferor’s taxable estate not only the property gifted and any gift tax paid1 but also all appreciation and income generated between the date of the gift and the transferor’s death.

2. ATRA Provides Permanence of Exemption Amounts. The enactment of Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), enacted in June 2001 (P.L. 107-16), altered the above analysis somewhat and created uncertainty for estate planners. Prior to the enactment of EGTRRA, the amount that one could give away tax-free (the “exemption amount”) was the same rerardless of whether such gifts were made during life or upon death. However, under EGTRRA a transferor could give away tax-free during his lifetime only $1 million (not counting the annual exclusion and other exempted transfers, discussed below) while at death a transferor could give away as much as $3.5M (in 2009). The 2010 Taxpayer Relief Act (“2010 TRA”)(P.L. No. 111-312) once again unified the estate and gift tax exemptions but the provisions of the 2010 TRA were set to expire in 2012. The 2010 TRA increased the estate and generation-skipping transfer (“GST”) tax exemption amounts to $5 million for decedents dying during and generation-skipping transfers made in 2010-2012, and the gift tax exemption amount to $5 million for gifts made in 2011-2012. Among other provisions, the 2010 TRA also adjusted the $5 million exemption amounts for inflation, provided portability of spouses’ exclusion amounts for estates of decedents dying and gifts made in 2011-2012 and reduced the maximum estate and gift tax rate to 35% for decedents dying and gifts made in 2010-2012 and for generation-skipping transfers made during 2011-2012. The American Taxpayer Relief Act of 2012 (“ATRA”) (P.L. No. 112-240) made permanent the provisions of the 2010 TRA – the $5 million estate, gift and GST tax exemption amounts and portability of a deceased spouse’s exemption – but also increased the top tax rate from 35% to 40%. In 2016, the estate, gift and GST tax exemption amounts were increased for inflation to $5,450,000. 2

1 But see, IRC § 2035(b) and section 4 below. 2 From $5,250,000 in 2013, $5,340,000 in 2014 and $5,430,000 in 2015.

4601929v1 3. State Gift Tax. Only Connecticut imposes a separate gift tax taxing lifetime gifts totaling more than $2M with a top rate of 12%. Although New York does not have a gift tax, 3 gifts made within three years of death will be included in the decedent’s New York taxable estate if made between April 1, 2014 and January 1, 2019 while the decedent was a New York resident.

4. Gift Tax Exemption and Annual Exclusion Should be Used. Due to the tax- exclusive nature of the gift tax, full use should be made of each donor’s $5 million (increased for inflation) gift tax exemption to the extent that the donor’s financial and other circumstances permit. The question of what property to give and the form the gift should take depends on a host of factors, including whether the donor wishes the donee to have income-producing or appreciating assets, whether the donor has a larger plan to cede control over time of an asset such as a family business, and the donor’s basis in the property.4 To the extent possible, the gift tax exemption should be used sooner rather than later. If the transferor dies within three years of making the gift, the federal gift tax paid is included in the transferor’s gross estate and is itself subject to estate tax, effectively eliminating the “tax exclusive” advantage of making a lifetime transfer. See, IRC § 2035(b). Lifetime transfers that do not require application of the gift tax exemption and techniques that minimize gift tax on lifetime transfers should also be used. Discussed below are the use of annual exclusion gifts, payments of tuition and medical expenses, gifts of partial interests in trust, and the use of a durable power of attorney to make gifts.

B. USE OF THE ANNUAL EXCLUSION

1. $14,000 Gifts to Donees

a. $14,000 Per Donee. Under IRC § 2503(b), U.S. citizens or residents are permitted to transfer, tax-free, up to $10,000 in each calendar year to an unlimited number of donees. Starting in 1999, the $10,000 amount began being adjusted for inflation in increments of $1,000. 1997 Taxpayer Relief Act (P.L. 105-34), § 501(c). For 2016, the annual exclusion amount is $14,000. Rev. Proc. 2015-53.

b. To Whom Transfers May Be Made. Annual exclusion gifts may be made to any person, regardless of his or her relationship to the donor. A gift to two or more persons holding title to property jointly (such as tenants in common or joint tenants) is a gift to each person in proportion to his or her interest in the property. Helvering v. Hutchings, 312 U.S. 393 (1941). A transfer to a trust is considered a gift to the beneficiaries of the trust, as opposed to the trust or the trustee. Reg. § 25.2503-2(a). A transfer to a corporation is considered a gift to the individual shareholders to the extent of their proportionate interest in the corporation. Reg. § 25.2511-1(h).

3 The New York State gift tax was repealed for gifts made on or after January 1, 2000. 4 The donee of an inter vivos gift takes the donor’s adjusted basis in the property. IRC § 1015(a). This is referred to as “carryover basis.” Basis is increased by the amount of Federal gift tax paid by the donor. IRC § 1015(d). For the purposes of determining loss, the donee’s basis is equal to the lesser of the donor’s basis or the fair market value of the property on the date of the gift. IRC § 1015(a).

2 4601929v1 c. Reciprocal Gifting is Prohibited. Where two or more donors give away identical sums to one another’s families, and seek to apply the annual exclusion to the transfers in order to increase the non-taxable gifts to their own families, the cross-gifts will not be eligible for the annual exclusion. Sather v. Commr., T.C. Memo 1999-309, rev’d in part on other grounds, 251 F.3d 1168 (2001). Similarly, when two donors establish identical trusts, each giving the other donor’s family members beneficial interests in the trust, the transfers will be treated as reciprocal and the annual exclusion will be denied. Rev. Rul. 85-24.

d. Gifts of Fractional Interests and Discounts. Gifts may be made of partial interests in property. For example, a donor may make annual gifts of interests in a partnership or a corporation or of interests in real property so that, over time, the donee’s aggregate interest in the property increases incrementally. Discounts on valuation may be given for minority interests, lack of marketability, blockage or built-in capital gains tax.

i. Minority Discount. The minority discount recognizes that shares of stock representing a minority interest in a closely held company are worth less than a proportionate share of the value of the assets of the corporation. This is because the holder of a minority interest has no control over corporate policy or decision making with respect to that interest. See Moore v. Commr., 62 T.C.M 1128 (1991), Ward v. Commr., 87 T.C. 78 (1986).

ii. Lack of Marketability. A lack of marketability discount may be applied if there is no ready market for shares of stock in a closely held business. Such a discount reflects the reality that, in the absence of a ready market, such shares would be more difficult to sell. See Estate of Branson v. Commr., T.C. Memo 1999-231.

iii. Discount for Blockage. The blockage discount recognizes that where one person holds a large number of publicly traded shares in a business, those shares cannot be liquidated quickly without depressing the market and therefore must be liquidated over time. Reg. § 25.2512-2(e).

iv. Built in Capital Gains. The discount for built in capital gains taxes reduces the fair market value of stock to take into account potential capital gains tax liabilities that would be incurred if a corporation liquidated, distributed or sold its assets, because no willing buyer of the corporation’s stock will pay an amount that did not take into account a reduction in the stock’s value for the amount of the potential tax. See, Eisenberg v. Commr., 155 F.3d 50 (1998), Dunn v. Commr., 301 F.3d 339 (2002).

e. No Carryforward. If a donor transfers less than the annual exclusion amount to a donee during the calendar year, the balance of the annual exclusion is lost; there is no carryforward of the unused portion of the exclusion.

2. Gift-Splitting

a. $28,000 Limit. If the donor is married and both spouses are U.S. citizens or residents, the donor and his or her spouse are entitled to transfer up to $28,000 in each calendar year to an unlimited number of third-party donees and the gifts will be considered to

3 4601929v1 have been made one-half by each spouse for gift tax purposes if the proper election is made. IRC § 2513. As noted above, because the annual exclusion amount for 2016 is $14,000, the amount a donor and his or her spouse may transfer is $28,000 per donee per year.

b. Transfer of Partial Interests to Spouse. If a donor transfers property in part to his spouse and in part to a third-party donee, the value of the gift to the donor’s spouse may not be split. However, the gift to the third-party donee may be subject to gift splitting, provided the gift is capable of being valued. Reg. § 25.2513-1(b)(4). For example, if a donor creates a trust for his wife for life and upon her death directs the principal be paid over to his children, the value of the trust remainder passing to the donor's children may be subject to gift-splitting. If, however, the donor gives his wife a general power of appointment over the principal of the trust, gift-splitting is not permitted or needed, arguably, because the retention of a general power of appointment would make the gift incomplete until the power was actually exercised. IRC § 2513(a) and Reg. § 25.2513-1(b).

c. Election to Gift-Split. The election to gift-split must be made with respect to all gifts made during a given calendar year to which the election applies, and cannot be applied to a portion of the gifts. Reg. § 25.2513-1(b).

d. Consent to Gift-Splitting. The consent of both spouses is required. IRC § 2513(a)(2). Consent must be given on an annual basis no later than the April 15th following the year in which the gifts were made, unless a request for an extension of time to file a gift tax return has been made. IRC § 2513(b) and Reg. § 25.6081-1. Consent is signified on the gift tax return(s) filed for that year. Reg. § 25.2513-2. Consent, once given, may be revoked, but no such revocation can be made after the date the gift tax return is actually due (i.e., April 15th). Reg. § 25.2513-3.

e. Liability for Tax on Split Gifts. Tax liability for the entire amount of tax on split gifts made during a calendar year is joint and several. Reg. § 25.2513-4.

3. Annual Exclusion Applies Only to Gifts of Present Interests

a. No Gifts of Future Interests. The annual exclusion is not available for gifts of future interests in property. Rather, the annual exclusion may only be applied to gifts of present interests. The regulations to IRC § 2503(b) define a “present interest” as “[a]n unrestricted right to the immediate use, possession, or enjoyment of property or the income from property (such as a life estate or term certain.)” Reg. § 25.2503-3(b). In contrast, where an interest in property will not “commence in use, possession, or enjoyment” until “some future date or time,” such interest is a future interest the gift of which will not qualify for the annual exclusion. Reg. § 25- 2503-3(a). See also, Fondren v. Commr., 324 U.S. 18, 20 (1945) (in determining whether an interest is a present or future one, the critical question is not when title to the property vests in the donee, but rather when the donee attains “the right presently to use, possess or enjoy the property.”)

b. Outright Gifts May Be Gifts of Future Interests. Even outright gifts may be considered gifts of future interests if enjoyment of the gift is postponed. For example, the

4 4601929v1 transfer of limited liability company (“LLC”) membership units by a husband and wife to their children and grandchildren did not qualify for the gift tax annual exclusion because the donees did not have the “unrestricted right” to the immediate use, possession or enjoyment of the LLC units or the income therefrom -- LLC members had no right to withdraw their capital, the LLC would likely make no distributions in the near future and any potential income distributions were at the discretion of the LLC’s manager. Hackl v. Commr., 335 F.3d 664 (7th Cir. 2003), aff’g 118 T.C. 279 (2002). A different result was reached in Estate of Wimmer v. Commr., T.C. Memo 2012-157 (2012). The Wimmers formed a family limited partnership and were the initial general and limited partners. The assets of the partnership consisted of publicly traded and dividend paying stock. From 1996 through 2000, George Wimmer made gifts of limited partnership interests to related parties. The partnership made distributions to the limited partners in 1996, 1997, and 1998 to pay federal income tax and beginning in 1999, the partnership distributed all dividends, net of partnership expenses, to the partners in proportion to their partnership interests. Limited partners also had access to capital account withdrawal. The court held that “the limited partners received a substantial present economic benefit sufficient to render the gifts of limited partnership interests present interest gifts on the date of each gift” which qualified for the annual gift tax exclusion under IRC § 2503(b).

c. Gifts in Trust under IRC 2503(b). Gifts in trust create two separate interests: an interest in trust income (“income interest”), and an interest in the principal of the trust upon its termination (“remainder interest”). A remainder interest is a future interest to which the annual exclusion may not be applied. The annual exclusion may be applied to a gift of an income interest if -- and only if -- the trust instrument gives the beneficiary the unrestricted current right to a determinable amount of trust income. Reg. § 25.2503-3(b). Even gifts of present interests will not qualify for the annual exclusion if the value of the interest cannot be measured.

i. Example: If a donor creates a trust for his brother for life, with the principal of the trust payable upon his brother’s death to his brother’s only child, the gift to his brother of the income of the trust is a present one, to which the annual exclusion applies. The gift to the donor’s brother’s child of the remainder of the trust is a future one, for which no annual exclusion is permitted. (The respective values of the income and remainder interests are determined under the rules set forth under IRC § 7520 for valuing partial interests.)

ii. Example: If, under the above example, the trustee was authorized to accumulate income and add the same back to principal, the gift to the donor’s brother would not be a present one and the annual exclusion would not apply. Reg. § 25.2503-3(c).

iii. Example: If instead, under the above example, the trustee was authorized in his discretion to pay income of the trust not only to the donor’s brother, but also to the donor’s other siblings, the annual exclusion would not apply, because the amount each sibling would receive would depend upon the exercise of the trustee’s discretion, and could not be presently ascertained. Reg. § 25.2503-3(c).

iv. Example: If, under the above example, the trustee was directed to accumulate trust income until the donor’s brother reached age thirty, and thereafter to pay over all income of the trust to the brother, the annual exclusion would not apply, because the brother’s

5 4601929v1 right to use of the income has been postponed until a future time. See, U.S. v. Pelzer, 312 U.S. 399 (1941).

v. Example: Finally, if, under the above example, the trustee was given discretion during the trust term to pay over principal of the trust to and among the donor’s brother and his children, the annual exclusion would not apply to the brother’s income interest, because the value of the income interest would depend upon the extent to which the trustee exercised his power to invade principal, and thus would not be capable of valuation as of the date of the gift. See, Schayek v. Commr., 33 T.C. 629 (1960), but see Jones v. Commr., 29 T.C. 200 (1975) acq. 1958-2 C.B. 6 (present interest not rendered indeterminate by trustee’s power to invade principal because the power was limited by an ascertainable standard and the possibility of the invasion was remote). See also, PLR 8213074.

4. Exceptions to the Present Interest Rule

a. IRC § 2503(c) Trusts for Minors. IRC § 2503(c) provides an exception to the rule that gifts of future interests do not qualify for the annual exclusion. It allows the annual exclusion to be applied to gifts made to minors in trust as long as certain conditions are met.

i. Statutory Requirements. IRC § 2503(c) provides as follows:

“No part of a gift to an individual who has not attained the age of 21 years on the date of such transfer shall be considered a gift of a future interest in property for purposes of subsection (b) if the property and the income therefrom-

(1) may be expended by, or for the benefit of, the donee before his attaining the age of 21 years, and

(2) will to the extent not so expended-

(A) pass to the donee on his attaining the age of 21 years, and

(B) in the event the donee dies before attaining the age of 21 years, be payable to the estate of the donee or as he may appoint under a general power of appointment as defined in section 2514(c).”

If the above requirements are met, the entire value of the trust qualifies for the annual exclusion.

ii. No Substantial Restrictions on Trustee’s Discretion. To meet the requirements of IRC § 2503(c)(1), the trust instrument need not direct that all income be paid over currently to or for the benefit of the donee. The trust instrument must, however, give the trustee discretion to pay over income to or for the benefit of the donee, and may not contain “substantial restrictions” on the trustee’s exercise of that discretion. Reg. § 25.2503-4(b)(1). The Tax Court has held that a direction in a trust instrument to pay the income beneficiary or apply on his behalf so much of the trust income and principal as “may be necessary for the education, comfort and support of the beneficiary” and to accumulate “all income not so needed”

6 4601929v1 did not impose a substantial restriction that violated the requirements of IRC § 2503(c)(1). Heidrich v. Commr., 55 T.C. 746 (1971), acq. 1974-2 C.B. 3. See also, Rev. Rul. 67-270 (direction in trust instrument to pay income beneficiary so much of trust income and principal as is necessary for donee’s “support, care, education, comfort and welfare” did not impose substantial restriction disqualifying trust from annual exclusion.) If, however, the trust instrument limits the application of income to specific needs and circumstances, and does not allow the trustee to expend income for the general support of the income beneficiary, the trust will not qualify for the annual exclusion. For example, where the trust instrument permitted the trustee to expend income only for medical and other emergencies, the trust did not qualify for the annual exclusion under IRC § 2503(c). Faber v. U.S., 309 F. Supp. 818 (S.D. Ohio 1969), aff’d, 439 F.2d 1189 (6th Cir. 1971).

iii. Trust Term May Be Extended At Option of Donee. While IRC § 2503(c)(2) requires that the trust fund pass to the donee upon reaching age 21, this requirement does not prohibit the donee from extending the term of the trust upon reaching majority. Reg. § 25.2503-4(b)(2). A trust instrument may provide that the trust may continue beyond the beneficiary’s reaching age 21, provided that the beneficiary is given the right, upon attaining age 21, to either (i) demand distribution of the trust fund at any time; or (ii) compel distribution during a limited period of time by giving notice to the trustee. Rev. Rul. 74-43. If the beneficiary does not exercise his right to terminate the trust, the trust will continue for the term provided in the trust instrument.

iv. Reasonable Time to Exercise Right of Withdrawal. The IRS has determined that giving the beneficiary a period of sixty days after reaching his 21st birthday to exercise his right of withdrawal is sufficient to qualify the trust for the annual exclusion. PLRs 8521089, 8512048 and 8507017. The IRS has also found thirty days to be sufficient. PLRs 8539022 and 8039023.

v. Principal Must Be Controlled by Donee At Death. To meet the requirements of IRC § 2503(c)(2)(B), the trust instrument must either direct that the principal of the trust be paid over to the income beneficiary upon his death before attaining age 21, or must give the income beneficiary a so-called “general power of appointment” over trust principal, allowing the beneficiary to direct the disposition of the trust fund upon his death.

vi. Default Provisions Permitted in Absence of Exercise of Power of Appointment. If the trust instrument gives the donee a power of appointment, the trust instrument may direct that the trust fund be paid over to third parties in the event the donee fails to exercise his power. Reg. § 25.2503-4(b)(3). Thus, a trust instrument may give the donee the right to appoint the principal of the trust as he directs, and in default of the exercise of the power by the donee, may direct that the trust fund be paid over to persons selected by the donor.

vii. Donor Should Not Serve as Trustee. The donor should not serve as a trustee of a § 2503(c) trust. Because the trustee possesses significant discretion to distribute trust income and principal, the donor who acts as trustee will be considered to have retained a power to control the beneficial enjoyment of the trust fund. As a result, the trust fund will be includible in the donor’s estate under IRC § 2036 and 2038. Regs. §§ 20.2036-1(b)(3) and 20.2038-1(a)(3).

7 4601929v1 b. Crummey Trusts. A trust may also qualify for annual exclusion treatment if the trust instrument gives the beneficiaries a demand or withdrawal right with respect to funds transferred into the trust, referred to as a “Crummey power.” A so-called “Crummey trust” has advantages over both IRC § 2503(b) trusts and § 2503(c) trusts. Unlike § 2503(b) trusts, a Crummey trust need not pay out all of its income in order to qualify for the annual exclusion. Moreover, unlike § 2503(c) trusts, a Crummey trust need not be subject to termination when the income beneficiary attains age 21. Even more significantly, a Crummey trust allows a donor to apply multiple annual exclusion amounts to reduce or eliminate taxable gifts. However, as discussed below, Crummey trusts have annual notice requirements and may have negative gift and income tax implications for the donee.

i. Right of Withdrawal Creates Present Interest. Typically, a Crummey trust gives beneficiaries the right to demand, on an annual basis, trust principal up to the amount of the annual exclusion. Beneficiaries are given a limited amount of time to exercise their withdrawal right. This right of withdrawal -- regardless of whether it is exercised -- converts what would otherwise be a gift of a future interest in trust into a gift of a present interest that qualifies for the annual exclusion. As will be seen below, the IRS has attempted to limit the number of annual exclusions that may be used to offset gifts to a trust so that annual exclusions are not applied in respect of persons with contingent interests or no interests (other than their right of withdrawal) in the trust.

ii. Crummey v. Commissioner. In this seminal case the donors created a trust for their four children. The trustee had discretion to accumulate trust income until each beneficiary attained age 21, was required to pay over trust income between ages 21 and 35, and thereafter was permitted to withhold income or distribute it to the beneficiary and his or her issue. The trust was not set to terminate until the death of each child, whereupon trust principal was payable to the child’s issue, subject to certain restrictions. The trust instrument also gave the income beneficiaries the right to withdraw annually an amount equal to the lesser of $4,000 or their pro rata share of the funds transferred into the trust that year. Crummey v. Comm’r, 397 F.2d 82 (9th Cir. 1968.) Under the trust instrument, the beneficiaries’ right to withdraw the funds transferred into the trust expired at the end of the calendar year in which the transfer was made. The Ninth Circuit ruled that the beneficiaries’ right to demand immediate payment gave them a present interest in the annual additions to the trust. The annual exclusion was therefore found to apply to the full value of the property that was subject to the beneficiaries’ right of withdrawal, even though the income of the trust was not to be distributed currently and the trust was not scheduled to terminate when the beneficiaries reached age 21.

iii. Cristofani Expands Circle of Crummey Holders. In a subsequent case, the IRS sought to disallow the annual exclusion for gifts to a trust where Crummey powers were given to beneficiaries with only contingent remainder interests in the trust. Cristofani Estate v. Comm’r, 97 T.C. 74 (1991). Under the trust created by the donor, trust income was payable to the donor’s two children, and the trustees also were given discretion to apply principal for the benefit of the children. Upon the donor’s death, trust principal was payable to the donor’s living children and to the issue of any deceased child. The donor’s five grandchildren therefore had only contingent remainder interests in the trust. The trust agreement gave each of the children

8 4601929v1 and grandchildren a power of withdrawal equal to the $10,000 annual exclusion, which power expired 15 days after funds were transferred to the trust. The donor claimed seven $10,000 annual exclusions for the transfers to the trust, and the IRS sought to disallow five of such exclusions on the ground that the donor’s grandchildren did not have present interests in the trust. The Tax Court ruled that the grandchildren’s right to withdraw principal within 15 days of a contribution gave them a present interest in the trust and therefore that the donor was entitled to claim annual exclusions corresponding to the funds subject to a power of withdrawal by his grandchildren. In so holding, the Court observed that in determining whether a present interest exists, the critical inquiry is not whether the beneficiary actually will receive present enjoyment of the property, but rather is whether the beneficiaries have a legal right to withdraw funds from the trust. The IRS acquiesced in 1992 and again in 1996 to the result only in the Cristofani decision. 97 T.C. 74 (1991), acq. in result only, 1992-2 C.B. 1, acq. in result only, 1996-2 C.B. 1.

iv. IRS Has Sought to Limit Application of Cristofani. The IRS stated that it will not seek to deny annual exclusions where Crummey powers are held by income beneficiaries and vested remaindermen, but would seek to challenge where facts and circumstances indicate that the donor did not intend to make a bona fide gift of a present interest. The IRS also indicated that it would mount a challenge in those circumstances where it can be shown that there was a “prearranged understanding that the withdrawal right would not be exercised or that doing so would result in adverse consequences to the holder . . . .” AOD 1996- 010. See, TAM 9628004, in which the IRS denied annual exclusions based on evidence of a pre-arranged understanding that the beneficiaries would not exercise their withdrawal rights where: (i) the trust agreement did not require notice to Crummey holders of their withdrawal rights or of additions to the trusts in question; (ii) in the year the trusts were created, the Crummey holders’ withdrawal rights expired before the transfers were actually made to the trusts, leaving no time for the exercise of those rights; (iii) many of the Crummey holders had no interest in the trusts other than their right of withdrawal; and (iv) none of the Crummey holders -- even those who had no other interests in the trust funds -- exercised their right of withdrawal. See also, TAM 9731004, in which the IRS denied annual exclusions for the primary beneficiaries’ children and siblings who had only contingent income and remainder interests and for spouses of the beneficiaries children and siblings who had withdrawal powers but no other interests. But see, Kohlsaat Estate v. Commr., T.C. Memo 1997-212 (rejecting IRS position that contingent or no interests combined with a lack of exercise of Crummey powers signaled improper pre-arranged plan, and allowing annual exclusions for contingent beneficiaries who had never exercised their withdrawal rights).

v. Notice of Demand Right. In order for additions to a Crummey trust to qualify for the annual exclusion, reasonable notice must be provided to the donees of their right of withdrawal. The IRS has taken the position that the annual exclusion is not available unless the beneficiaries receive current notice of their right to withdraw funds. Rev. Rul. 81-7. But see, Turner Estate v. Commr., T.C. Memo 2011-209 (indirect gifts to beneficiaries when grantor paid life insurance premiums on policies held in a trust qualified for the annual exclusion notwithstanding that beneficiaries did not receive notice of the transfers). An addition to a trust qualifies as a present interest even if contributed in one year where the beneficiary may exercise the demand right in the following year. Rev. Rul. 83-108. Beneficiaries may not waive their

9 4601929v1 right to notice of future additions to the trust. TAM 9532001. Prudent planning therefore requires that the trust instrument include a notice requirement, that actual written notice be given to the beneficiaries each time an addition is made to the trust, and that an acknowledgement of the right of withdrawal be executed by all beneficiaries each time an addition is made.

vi. Notice to Minors. Where Crummey holders have not yet attained majority, notice must be given to a parent or guardian of the minor. PLR 8133070.

vii. Reasonable Time to Exercise Right of Withdrawal. The IRS has not stated what constitutes a reasonable time within which to exercise withdrawal rights but several Private Letter Rulings have held that where a beneficiary has at least 30 days to exercise his withdrawal rights was a reasonable opportunity. See, PLRs 200130030, 200123034 and 200011054. Note that in Cristofani the Crummey holders were given 15 days to exercise their rights of withdrawal, and the IRS did not challenge that period as unreasonable. But see, TAM 9141008 (20 days found to support conclusion that donor did not intend Crummey holders to exercise right of withdrawal).

viii. Requirement of Transferable Assets. No annual exclusion is available unless the trust owns assets that may be used to satisfy a withdrawal demand. TAM 8445004.

ix. Gift Tax Consequences of Crummey Powers. The annual power to withdraw funds from the trust is considered to be a general power of appointment held by the Crummey holder under IRC § 2514(c). To the extent that the Crummey holder does not exercise his or her right of withdrawal in a given year, there is a release or lapse of this power of appointment, which may constitute a taxable gift from the Crummey holder to the person or persons who will benefit from the lapse under the terms of the trust. IRC § 2514(b) and (e).

x. $5,000 or 5% Exception. There is a safe harbor provision, however, which provides that no taxable gift occurs unless the property that is subject to the lapsed power of withdrawal exceeds the greater of $5,000 or 5% of the total value of the property from which the withdrawal power could have been satisfied (the so-called “five and five exception”). IRC § 2514(e). Therefore, a lapse of a right to withdraw less than $5,000 (or 5%) annually will not have any gift tax consequences to the Crummey holder. A gift tax problem may arise, however, where the donor wishes to take full advantage of the annual exclusion, and therefore gives the Crummey holder the right annually to withdraw the full amount of the addition to the trust. In such an instance, if the withdrawal power is not exercised, the Crummey holder may be treated as having made a gift of the difference to the persons who would take the trust funds in default of the exercise of the withdrawal power.

xi. Avoiding Completed Gifts to Third Persons. The provisions of IRC § 2514 apply only in those circumstances where the lapse of the Crummey holder’s withdrawal power would constitute a completed gift to a third person or persons. Therefore, where a Crummey holder and/or his estate is entitled to all of the income of a trust and is also entitled to all of the principal, no gift tax consequences arise from the lapse of the annual power of withdrawal. This is because the lapse of the power of withdrawal does not provide a benefit to any third person. See, Reg. § 25.2511-2(b) and PLR 8142061. Moreover, where a Crummey

10 4601929v1 holder is given the right to direct the disposition of the trust principal upon his death through a power of appointment, no gift tax consequences arise from the lapse of his annual power of withdrawal, because the Crummey holder’s retained power to appoint the trust fund results in no completed gift being made at the time the withdrawal power lapses. PLRs 8825111, 8545076, 8517052 and 8229097. See also, Reg. § 25.2511-2(b). Therefore, trust instruments often give Crummey holders a general or limited power of appointment over the trust fund.

xii. Hanging Powers. To avoid the gift tax consequences of a completed gift upon the lapse of a right of withdrawal, practitioners have also given Crummey holders so-called “hanging powers” over trust principal. Under this approach, the right to withdraw the amount of the annual addition to the trust does not lapse automatically upon the expiration of the notice period. Rather, in each year of the trust, the right of withdrawal lapses only to the extent of the greater of $5,000 or 5% of the property from which the withdrawal could have been satisfied (as provided in IRC § 2514(e)). The balance of the funds over which the Crummey holder was given a right of withdrawal continues to be subject to that right of withdrawal.

Example: In year 1 of the trust, the donor contributes $10,000. The donor’s son has the right to withdraw the entire $10,000 but does not elect to exercise his right. At the end of the year, the son’s right to withdraw trust principal lapses, but only to the extent of the greater of $5,000 or 5% of the trust assets. The balance of $5,000 continues to be subject to the son’s right of withdrawal. In year 2, the donor again contributes $10,000 to the trust, over which the son has a Crummey power. The son now has a right to withdraw $15,000 -- $5,000 hanging over from year 1 and $10,000 for year 2. If the son again elects not to exercise his right of withdrawal, his withdrawal right will lapse with respect to $5,000 of such funds, and his right to withdraw the remaining balance of $10,000 will continue, and so on.

xiii. Only 1 Five and Five Exemption Per Donee. Under IRC § 2514(e), a Crummey holder is entitled to only one “five and five” exemption each year. Thus, a donor may not avoid potential gift tax problems by creating multiple trusts for the same donee. Rev. Rul. 85-88.

xiv. Avoiding Tax Savings Language. In drafting a hanging power provision in a Crummey trust, the practitioner must be careful to avoid any language that suggests that the purpose of the provision is solely one of tax savings. No reference should be made to avoiding a taxable gift, and the amount of the withdrawal power that will lapse annually should not be tied to the amount that may lapse without creating a taxable gift. The provision should state simply that each Crummey holder’s right of withdrawal shall lapse only to the extent of $5,000 or 5% of the trust assets. See, TAM 8901004.

xv. Income Tax and Estate Tax Implications for Donees. A Crummey holder may be considered to be the owner, for income tax purposes, of those trust funds over which he or she has a right of withdrawal and may be required to report as income a percentage of trust income, deductions, and credits corresponding to his or her ownership interest. IRC § 678. To the extent that a Crummey holder continues to have a right of withdrawal over trust property at the time of his or her death (prior to the termination of the trust), the property that is subject to

11 4601929v1 the right of withdrawal is includible in the Crummey holder’s estate under IRC § 2041. Moreover, to the extent that a Crummey holder failed to exercise a power of withdrawal in the years before his or her death, trust property that was the subject of taxable lapses may also be includible in the Crummey holder’s estate under IRC § 2041. See, Reg. § 20.2041-3(d). If the Crummey holder survives to the termination of the trust, the Crummey holder will own the trust property outright, and the entire value of the property will be includible in her estate under IRC § 2033.

C. TUITION AND MEDICAL EXPENSES

1. Tuition Exclusion

a. Tuition Paid to Qualified Educational Organization is Not a Taxable Gift. IRC § 2503(e) provides that any amount paid on behalf of an individual as tuition to a qualified educational organization for education or training is not a taxable gift. To qualify for the tuition exclusion, the educational organization must be one that “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.” Reg. § 25.2503-6(b)(2). The educational organization must also have as its primary purpose the presentation of formal instruction. If an organization is engaged in both educational and non-educational activities, the tuition exemption is not available unless the non-educational activities are merely “incidental” to the formal educational instruction. Reg. § 1.170A-9(b). The term “educational organization” includes primary, secondary, preparatory and high schools, and colleges and universities. Reg. § 1.170A-9(b). It would likely not include summer camp, nursery, pre-school or day care programs that were merely custodial as opposed to educational. See, Rev. Rul. 78-446.

b. Tuition Must Be Paid Directly to School. The tuition exclusion is available without regard to the relationship between the donor and the donee. Reg. § 25.2503-6. However, the tuition must be paid directly to the education institution; it may not be reimbursed to the student. Reg. § 25.2503-6(b)(2).

c. Tuition May Be Prepaid. The amount of the tuition exclusion is unlimited and in addition to the § 2503(b) annual exclusion. Tuition for future years may be pre-paid by a donor provided that tuition must be forfeited and cannot be subject to refund in the event the donee ceases to attend school. TAM 199941013. See also PLR 200602002.

d. Exclusion Does Not Apply to Education Trusts. The exclusion is not available to funds placed in trust for a student’s education. Reg. § 25.2503-6(c). Moreover, the tuition exclusion may not be applied to payments made to pre-paid tuition programs under IRC § 529. IRC § 529(c)(2)(A)(ii).

e. Exclusion Does Not Cover Living or Other Expenses. The exclusion applies to tuition only for full-time or part-time studies. It does not cover amounts paid for books, supplies, room and board, or any other incidental expenses that do not constitute tuition. Reg. § 25.2503-6(b)(2).

12 4601929v1 2. Medical Expense Exclusion

a. Medical Expenses Paid Directly to the Provider Are Not Taxable Gifts. Any amount paid on behalf of an individual to a medical provider in respect of medical care is not a taxable gift. IRC § 2503(e). This exclusion also applies without regard to the relationship between the donor and the donee. Reg. § 25.2503-6. The exclusion applies to expenses “incurred for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body or for transportation primarily for and essential to medical care.” Reg. § 25.2503-6(b)(3). The exclusion also applies to amounts paid for medical insurance on behalf of any person. Id.

b. Medical Expenses Must Be Paid Directly to Service Provider. To qualify for the unlimited exclusion for amounts paid to a medical provider for medical care, payment must be made directly to the service provider, and cannot be reimbursed to the donee. Regs. § 25.2503-6(b)(1)(ii) and (c).

c. Exclusion Does Not Apply to Amounts Reimbursed by Insurer. The exclusion does not apply to amounts paid for medical care that are reimbursed by the donee’s insurance. Reg. § 25.2503-6(b)(3).

d. Exclusion is Not Available for Contributions to § 529A State-Run Qualified ABLE Programs. These programs are established and maintained by a state (or its agency or instrumentality) for tax years beginning after December 31, 2014. A person may make contributions to an account established for the sole purpose of supporting individuals with disabilities to maintain their health, independence and quality of life. IRC § 529A(c)(2)(A)(ii). The medical expense exclusion does not apply to contribution to ABLE Programs – any contribution is treated as a gift of a present interest qualifying for the annual exclusion. Prop. Reg. § 1.529A-4(a)(1).

II. DURABLE POWERS OF ATTORNEY

A power of attorney is a document by which an individual (the “principal”) grants to one or more persons (the “agent” or “attorney-in-fact”) the authority to perform certain financial transactions on his or her behalf. A “durable” power of attorney allows the agent to act even if the principal becomes incapacitated and unable to make decisions on his or her own behalf. Durable powers of attorney are a popular estate planning tool because they allow individuals to delegate management of their financial affairs in the event of incapacity through the use of a relatively simple document. The powers given to an attorney-in-fact may be very broad or, conversely, may be quite limited.

A. CURRENT LAW IN NEW YORK

1. New York Statutory Short Form Power of Attorney. The New York State legislature enacted sweeping changes to New York’s power of attorney statute which became effective on September 1, 2009. Amendments to the statute became effective as of September 12, 2010, retroactive to September 1, 2009. N.Y. Gen. Oblig. Law §§ 5-1501 through 5-1514. The changes to the statute were intended to provide safeguards against abuse and misuse of the

13 4601929v1 power of attorney. The new law requires that all powers of attorney5 executed in New York contain a “cautionary statement” to the principal and “important information” to the agent regarding the agent’s fiduciary duties using the exact wording provided in the statute. GOL § 5- 1513. The new power of attorney must be signed by both the principal and agent and acknowledged by them before a notary public. GOL § 5-5-1501B(1)(b) and (c). The effective date of the agent’s authority is the date the agent signs in front of a notary public. Any writing that complies with the new statutory requirements may be used as a power of attorney. GOL § 5-1504. However, there are benefits of using the statutory short form. First, if the statutory short form is used, third parties (i.e., financial institutions) are legally required to honor it. GOL § 5- 1501(2)(q) and § 5-1504(1). There is nothing that requires the acceptance of a form that is not a statutory short form. GOL § 5-1504(a)(6). Second, if the statutory short form is used, the powers enumerated in the form will be construed in accordance with the detailed construction provisions of the statute, thereby reducing the possibility of disagreement over the scope and meaning of the enumerated powers.

2. New York Statutory Gifts Rider. The most significant change in the new power of attorney statute is the Statutory Gifts Rider (“SGR”), a separate document that supplements the statutory short form and when read together comprises one document. GOL § 5-1514(9)(c)- (d). If the SGR is not completed, the agent may only make gifts of $500 per year in the aggregate, if the principal grants that authority under the power of attorney. GOL § 5-1502I(14). The purpose of the SGR is to give gift giving authority to the agent. The SGR is divided into three categories: (a) limited authority -- i.e., for annual gift tax exclusion amount gifts to the principal’s spouse, children and more remote descendants and parents, (b) modified authority -- i.e., for gifts less than or in excess of the annual gift tax exclusion amount to other beneficiaries or other gift transactions6, and (c) specific authority for gifts of any amount to the agent or agents. The principal must sign the SGR in front of two witnesses and the principal’s signature must be acknowledged before a notary public.

3. Modifications. Both the statutory short form power of attorney and SGR may be modified to make additional provisions, including language to limit or supplement the authority granted to the agent. GOL § 5-1503. For example, the statutory short form can be changed from a durable to a non-durable power of attorney.

4. Revocation. The execution of the statutory short form power of attorney does not automatically revoke any other powers of attorney previously executed by the principal unless the principal so indicates.

5 Defined in GOL § 5-1501C to exclude powers of attorney granted in connection with certain commercial and business transactions. 6 Such as gifts in trust for the benefit of persons designated by the principal or for purposes that are in the principal’s best interests such as for estate planning purpose, if the principal so designates.

14 4601929v1 B. ESTATE TAX IMPLICATIONS OF INVALID GIFTS

1. Invalid Gifts Result in Inclusion in Donor’s Estate. When the principal dies, the IRS looks to state law to determine whether gifts made by his agent under a power of attorney were authorized under the instrument. See, Commr. v. Estate of Bosch, 387 U.S. 456, 465 (1967); Estate of Goldman v. Commr, T.C. Memo 1996-29; TAM 9342003. Where a gift made under a durable power of attorney is found to be invalid under state law and the terms of the instrument, the property subject to the gift becomes includible in the principal’s gross estate as a revocable transfer under IRC § 2038. TAM 9342003, TAM 9403004. See also, Estate of Goldman v. Commr, T.C. Memo 1996-29 (NY power of attorney did not explicitly authorize gifts and absence of intent by principal to make gifts); Gaynor Estate v. Commr., T.C. Memo 2001-206 (CT power of attorney did not authorize gifts and no showing that decedent had any established gift giving pattern or that she intended to include such a power in the power of attorney).

2. Valid Gifts Avoid Inclusion in Donor’s Estate. Conversely, where the IRS determines that the gift would be upheld under state law even in the absence of a express authorization in the instrument to make a gift, the gift will not be included in the principal’s gross estate under IRC § 2038. See, e.g., TAM 199944005 (applying Texas law, Service upheld validity of gifts for estate tax purposes where instrument granted attorney-in-fact broad powers, gifts were relatively small compared to size of principal’s estate, gifts did not disadvantage principal, and gifts were consistent with principal’s prior pattern of gifting and her testamentary plan); Estate of Ridenour, T.C. Memo 1993-41 (applying Virginia law, court ruled gifts were valid for estate tax purposes where gifts were consistent with principal’s past pattern of gifting); Estate of Bronston v. Commr, T.C. Memo 1988-510 (applying New Jersey law, court ruled gifts were valid where instrument authorized agent to “grant and convey any property” owned by the principal and gifts were consistent with principal’s past pattern of gifting).

C. PRACTITIONERS MUST USE NEW NY STATUTORY SHORT FORM

To avoid having to defend the validity of gifts made under a power of attorney, practitioners should be certain to use the new New York statutory short form. Moreover, clients that executed powers of attorney before 2009 should be counseled to execute new forms containing the SGR. Failure to do so may cause a battle on two fronts – between beneficiaries fighting over the propriety of the gifts made, and between the principal’s estate and the IRS.

III. GRANTOR RETAINED INTEREST TRUSTS (GRITs, GRATs, GRUTs and QPRTs)

A. GRANTOR RETAINED INCOME TRUST (“GRIT”)

1. Generally. A GRIT is an irrevocable trust created by an individual (the “grantor”) during his or her lifetime. The grantor transfers property to a trust while retaining the right to receive income from the trust for a specified term of years (or until the grantor’s earlier death). At the end of the trust term, the trust remainder is distributable to the beneficiaries named in the trust instrument. Often the trust instrument provides that if the grantor dies prior to the

15 4601929v1 expiration of the stated term of years, the remainder will revert to the grantor’s estate (a “reversion”) or in the alternative, the grantor was granted a limited power of appointment.

2. A GRIT Provides A Significant Tax Advantage. The tax benefit of a GRIT is that it allows the donor to pass property to the remainder beneficiaries at a reduced gift tax cost: the value of the grantor’s retained interests in the trust is not subject to gift tax; rather, gift tax is imposed only on the fair market value of the remainder interest. The value of the remainder interest is determined by subtracting the income and reversionary interests from the fair market value of the property transferred to the trust. If the grantor survives the term of the GRIT, the value of the property transferred, including any post-transfer appreciation, will not be included in the grantor’s estate.

3. GRITs Provide No Tax Advantages for Inter-Family Transfers. Congress enacted IRC § 2036(c) (later repealed) and IRC § 2702 to restrict a GRIT’s favorable results for transfers between family members. Under IRC § 2702, where trust assets pass to family members, the interest retained by the grantor or an applicable family member is valued at zero, and the assets transferred to the GRIT are valued at full fair market value for gift tax purposes. Nevertheless, a “common law” GRIT is still a favorable tax-planning device if a grantor wants to make a gift in trust to someone who is not a family member. This favorable tax treatment is illustrated below.

4. If Grantor Dies During Trust Term the Tax Advantange is Lost. If the grantor dies prior to the end of the term, the value of the property in the GRIT is includible in the grantor’s estate under IRC § 2036, which provides in pertinent part that “the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer by trust or otherwise under which he retained for his life . . . the right to the income from the property.” (A credit will be given for the gift tax paid by the grantor when the trust was created.) If the grantor had retained the right to receive only a portion of the GRIT income only that portion of the GRIT necessary to provide the retained income payment (without reducing or invading principal) is includible in the grantor’s estate if the grantor does not survive the retained trust term. Reg. § 20.2036-1(c)(2)(i), (iv), Ex. 4, (3), IRC § 20.2039-1(e), (f). If it is expected that the grantor will not survive the trust term, the GRIT could permit the trustee to prepay the grantor’s interest. If the grantor should die after such prepayment the trust property would not be includible in the grantor’s estate because the grantor had no retained interest under IRC § 2036.

5. Valuing Partial Interests in Trust. With respect to trusts such as GRITs (as well as GRATs discussed below) in which the grantor has retained an interest, the value of the gift is the present value of the property transferred less the value of the grantor’s retained interests in the property. Reg. § 25.2512-5(d)(2). To determine the value of the gift, reference is made to the IRS tables set forth in IRC § 7520.7 These tables are based on two components: (i) a mortality component, which establishes the life expectancy of the grantor or other individual whose life

7 IRC § 7520 states that “the value of any annuity, interest for life or a term of years or any remainder or reversionary interest shall be determined (1) under the tables prescribed by the Secretary and (2) by using an interest rate . . . equal to 120 percent of the federal midterm rate in effect under § 1274(d)(1) for the month in which the valuation date falls.”

16 4601929v1 measures the interest; and (ii) an interest rate component, which assumes a given rate of return from the property based upon when the gift was made. (Where an interest has been retained only for a term of years rather than for the life of an individual, the mortality component is not relevant unless the grantor has retained a reversionary interest.) The assumed rate of return varies monthly. The rate of return is set at the applicable federal rate (“AFR”) for the month in which the gift is made. IRC § 7520(a)(2). The IRS publishes the IRC § 7520 rate in monthly revenue rulings.

B. OVERVIEW OF GRANTOR RETAINED INTEREST TRUSTS AND IRC § 2702

1. Section 2702. As discussed above, Congress enacted IRC § 2702 to restrict the favorable tax treatment resulting from the use of trusts to effect transfers between family members. Section 2702 provides special rules to determine the amount of the gift when a grantor makes a transfer in trust to or for the benefit of a member of his family and the grantor or an applicable family member retains an interest in the trust. Reg. § 25.2702-1(a). Under IRC § 2702(e)8 a “member of the family” means with respect to any individual, (A) such individual’s spouse, (B) any ancestor or lineal descendant of such individual or such individual’s spouse, (C) any brother or sister or the individual and (D) any spouse of any individual described in (B) or (C). If IRC § 2702 applies to the transfer, the value of interest retained by the grantor or applicable family member is valued at zero and the entire transfer to the trust is subject to gift tax. Reg. § 25.2702-1(b). However, if the interest retained by the grantor is a “qualified interest,” the zero valuation rule is inapplicable and the regular valuation rules under IRC § 7520 apply. Reg. § 25.2702-2(b)(2).

2. Qualified Interests. A “qualified” income interest in a trust can be one of two kinds: a qualified annuity interest (in a trust commonly referred to as a GRAT), or a qualified unitrust interest (in a trust commonly referred to as a GRUT). These qualified income interests are patterned after the income interests given in charitable remainder trusts. See IRC § 664(d) and the Regulations relating thereto. A qualified annuity interest is an irrevocable right to receive a fixed amount, which can be either a stated dollar amount or a fixed fraction or percentage of the initial fair market value of the property transferred to the trust as finally determined for federal tax purposes. Reg. § 25.2702-3(b)(1). A qualified unitrust interest is an irrevocable right to receive a fixed fraction or percentage of the net fair market value of the trust assets, determined annually. Reg. § 25.2702-3(c)(1). A qualified interest also includes payments to the grantor’s estate if the grantor dies during the stated term. Reg. § 25.2702-3(e) Exs. 5 and 6. 9 The regulations had provided that only the interest of the grantor and not the grantor’s estate was a qualified interest. If the annuity or unitrust amount is payable to the grantor’s estate for the remainder of the term if the grantor dies before the term ends, the value of the annuity or unitrust interest (and the remainder) may be determined without regard to any mortality factor.

8 Which references IRC § 2704(c)(2), 9 The regulations adopted the decision in Walton v. Commr., 115 T.C. 589 (2000) explained below, acq. Notice 2003-72, 2003-44 I.R.B. 964.

17 4601929v1 a. Fixed Term for Annuity or Unitrust Interest. The governing instrument must fix the term of the annuity or unitrust interest. The term must be for the life of the term holder, for a specified term of years or for the shorter of those two periods. Reg. § 25.2702- 3(d)(4).

b. Amount Must Be Payable At Least Annually. Both the annuity amount, in the case of a GRAT, and the unitrust amount, in the case of a GRUT, must be payable not less frequently than annually. Regs. § 25.2702-3(b)(3), (c)(3).

c. Right to Receive Excess Income Is Not a Qualified Interest. The fixed amount or percentage may not, in any given year, exceed 120 percent of the amount or percentage payable in the preceding year. Regs. § 25.2702-3(b)(1)(ii) and (c)(1)(ii). A qualified interest will not fail simply because the trust instrument permits income in excess of the fixed amount or percentage to be paid to the qualified interest holder. However, the right to receive excess income is not a qualified interest and is not taken into account in valuing the qualified interest. Regs. § 25.2702-3(b)(1)(iii), (c)(1)(iii) and (e), Exs. 1 and 2.

d. Incorrect Valuations of Trust Property. With respect to annuities that are based on a fraction or percentage of the initial fair market value of the trust, and also with respect to unitrust interests, the trust instrument must contain provisions meeting the requirements of Reg. § 1.664-2(a)(1)(iii) or Reg. § 1.664-3(a)(1)(iii), which require payment adjustments or repayment in the event that the fair market value of the trust property has been incorrectly determined. Regs. § 25.2702-3(b)(2) and (c)(2).

e. Period for Payment. Payment of the annuity or unitrust amount may be based on either the anniversary date of the creation of the trust or the taxable year of the trust. The governing instrument must contain provisions relating to pro rata computation of the annuity or unitrust amounts in the case of a short taxable year and the last taxable year of the trust. Regs. § 25.2702-3(b)(3) and (c)(3).

f. Distributions to Third Parties Prohibited. Distributions from a GRAT or GRUT may not be made to anyone other than the annuitant or unitrust recipient and the term of the trust must be fixed. Regs. § 25.2702-3(d)(2) and (3) and (e), Ex. 7.

g. Commutation of Interests Prohibited. The governing instrument of either type of qualifying income interest must prohibit commutation of the term holder’s interest, i.e., prepayment of the interest for its actuarial value. Reg. § 25.2702-3(d)(5).

h. Additional Contributions to the Trust. The trust instrument for a GRAT must prohibit any additional contributions to the trust. Reg. § 25.2702-3(b)(5). There is no restriction on additional contributions to a GRUT.

3. If the Grantor Dies During the Trust Term the Tax Advantage is Lost. If the grantor dies before the end of the term, all of the trust property is includible in the grantor’s gross taxable estate and subject to estate tax. (A credit will be given for gift tax previously paid in respect of the transfer to the trust.) For estates of decedents dying after July 13, 2008, the IRS

18 4601929v1 will include in the grantor’s estate, only that portion of the GRAT or GRUT principal necessary to provide the retained annuity or unitrust (without reducing or invading principal) if the grantor does not survive the trust term. The portion of the trust principal includible in the grantor’s estate under IRC 2036 shall not exceed the fair market value of the trust’s principal at the decedent’s date of death. See Regs. §§ 20.2036-1(c)(2)(i), (iv), Ex. 6, (3), 20.2039-1(e), (f).

C. GRANTOR RETAINED ANNUITY TRUST (“GRAT”)

1. Generally. A GRAT is an irrevocable split-interest trust whereby the grantor transfers property to a trust and retains a “qualified” annuity interest (as defined above) for a term of years, with the remainder passing to beneficiaries designated in the trust instrument at the end of the trust term. The value of the GRAT remainder interest subject to gift tax is the fair market value of the property transferred to the trust less the value of the retained annuity interest. No discount is allowed for a reversion in a GRAT because the contingent reversion is not a “qualified interest” and is, therefore, valued at zero. IRC § 2702(b), see also Reg. § 25.2702- 3(e), Ex. 1 and PLR 9239015. The annuity percentage and term can be chosen, however, so that the value of the annuity payments over the term of the GRAT will almost equal or actually equal the entire value of the transferred property, resulting in a very small or, in the case of the “zeroed-out” GRAT discussed below, no current gift.

2. GRAT Tax Advantages. Like GRITs, a GRAT offers a significant tax advantage: the value of the grantor’s retained interests in the trust is not subject to gift tax; rather, as stated above, gift tax is imposed only on the fair market value of the remainder interest. If the grantor survives the term of the GRAT, the value of the property transferred, including any post-transfer appreciation, will not be included in the grantor’s estate. GRATs are most tax-effective when appreciating assets are transferred to the trust. This is because the annuity amount paid to the interest holder is determined at the time the property is initially transferred to the trust, without regard to post-transfer appreciation. If the assets in the GRAT grow in excess of the IRC § 7520 rate, the excess benefits the remaindermen and will escape gift tax as well as estate tax. Because the excess benefits only the remaindermen, a grantor can potentially pass more to his children through a GRAT than he can by a direct gift to them.

3. Minimum Value Annuity Interest. As noted above, the annuity percentage and term for a GRAT can be chosen so that the present value of the annuity payments over the term of the GRAT will equal the entire value of the transferred property, resulting in no current gift tax on the remainder interest. The language of IRC § 2702 does not prohibit structuring a GRAT in this manner. Originally, IRC § 664 applying to charitable remainder trusts did not provide for any minimum value of the remainder but this provision was amended to provide for a minimum value. IRC § 664(d)(1)(D). No amendment was made to IRC § 2702 at that time. Therefore, it seems that the value of a GRAT remainder may be very small, even zero.

4. The Walton Decision. The IRS’s position on zeroed-out GRATs was rejected by the Tax Court in Walton v. Commr., 115 T.C. 41 (2000), the first reported decision to address this issue. In Walton, the value of the remainder interest was less than .003% of the value of the property contributed to the GRAT. The IRS did not argue that the annuity interest of the grantor was not a qualified interest. The IRS questioned whether the interest created by the grantor’s

19 4601929v1 estate was a qualified interest. In Walton, the IRS argued that the transferor created three interests in each GRAT: an annuity payable to her during her life, the contingent interest of her estate to receive annuity payments in the event she died prior to the expiration of the term, and the remainder interest. Because the contingent interest was not a qualified interest, the IRS concluded, it was valued at zero. The Tax Court disagreed with the IRS and held that payment to the grantor’s estate should not be ignored in valuing the grantor’s interest in the trust. See B 2 supra.

5. Qualified Interest in Grantor’s Spouse. The value of the gift to the remainder beneficiaries will be smaller if the qualified interest is retained by the grantor and the grantor’s spouse than it would be where only the grantor, and not the grantor’s estate, retains a qualified interest, if the grantor’s spouse has a successive qualified interest in the property transferred to the trust and the grantor retains the power to revoke the spouse’s interest. Reg. § 25.2702-3(e), Ex. 8.

D. GRANTOR RETAINED UNITRUST (“GRUT”)

1. Generally. A GRUT is an irrevocable split-interest trust whereby the grantor transfers property to a trust, retaining a “qualified” unitrust interest (as defined above), with the remainder passing to the beneficiaries named in the trust instrument at the end of the trust term. The value of the GRUT remainder interest is the fair market value of the property transferred to the trust minus the value of the retained unitrust interest. As with a GRAT, no discount is allowed for a reversion in a GRUT because the contingent reversion is not a “qualified interest” and is, therefore, valued at zero.

2. GRUT Advantages and Disadvantages. If a GRUT grows in excess of the § 7520 rate, the interest holder will benefit through his or her unitrust payments, which represent a percentage of the increasing value of the GRUT assets. Thus, if a grantor wishes to receive additional income in the event trust assets appreciate in value, a GRUT is more desirable than a GRAT. (Because the interest holder shares in the appreciation of the trust assets, the remaindermen of a GRUT generally will not receive more from the GRUT than they would have via a direct gift equivalent to the value of the remainder interest.) Note that GRUTs are more administratively burdensome than GRATs because GRUT assets are required to be valued annually.

E. QUALIFIED PERSONAL RESIDENCE TRUST (“QPRT”).

1. Generally. Using a tax vehicle called a “QPRT,” a donor transfers his or her personal residence to a trust, with the donor retaining the right to live in the residence for a stated term of years (or until his or her earlier death). At the end of the stated term, the trust terminates and the residence passes to the remaindermen of the trust. Thus, the donor loses control of the residence at the end of the stated term, when ownership passes to the remaindermen. If the donor wishes to continue to occupy the residence after the term has ended, he or she must rent it from the beneficiaries at a fair rental value.

2. A QPRT Provides A Significant Tax Advantage. Under the QPRT rules, the value of the gift to the remaindermen is reduced by the value of the donor’s retained interest in

20 4601929v1 the trust. If the donor survives the term, the residence is not included in his or her estate, and any appreciation in the residence after the date of the gift passes to the remainder beneficiaries free of gift and estate tax. In general, the longer the QPRT term, the smaller the gift tax cost in creating the trust. However, the longer the QPRT term, the more risk there is that the donor may not survive the term. If the donor dies during the QPRT term, the tax advantage is lost, and the value of the residence (including any appreciation through the date of death) is included in the donor’s federal gross estate. See 7, below.

3. Exception to § 2702 Valuation Rules. The special valuation rules of IRC § 2702 do not apply to QPRTs established to benefit family members. Rather than valuing the retained interest at zero under IRC § 2702, the value of the gifted remainder is determined under the regular § 7520 valuation rules. Section 2702 allows two types of trusts to qualify under this exception: personal residence trusts and qualified personal residence trusts.

4. Requirements for Both Types of Personal Residence Trusts.

a. Personal Residence Requirement. The residence transferred to both types of trusts must be used primarily as a personal residence when occupied by the term interest holder. During periods when the residence is not occupied by the term holder, it may not have a primary use that is other than as a residence. Regs. § 25.2702-5(b)(2)(iii) and (c)(2)(iii). A “personal residence” is defined as either the principal residence of the term holder, one other residence of the term holder, or an undivided fractional interest in either. Regs. § 25.2702- 5(b)(2)(i) and (c)(2)(i). If the residence is not the term holder’s principal residence, it must be treated as “used” by the term holder within the meaning of IRC § 280A(d)(1). Reg. § 25.2702- 5(b)(2)(i)(B). Section 280A(d)(1) provides that a term holder uses a residence as such if he uses it for personal purposes for more than 14 days per year or ten percent of the number of days during such year for which such unit is rented at fair rental value.

i. “Personal Residence” is Interpreted Broadly. A personal residence is interpreted broadly to include a houseboat, a house trailer or a cooperative housing unit. See, Reg. § 1.1034-1(c)(3)(i) and PLR 9448035. It is also construed to include appurtenant structures used for residential purposes, such as a garage, a green-house, or a tool shed. See, PLRs 9827037 and 9639064. It also includes adjacent land not in excess of an amount of land reasonable appropriate for residential purposes (taking into account the residence’s size and location). Regs. § 25.2702-5(b)(2)(ii) and (c)(2)(ii). See also, PLRs 9529035 and 9442019. The IRS has also concluded that a personal residence may include a tennis court and swimming pool. PLR 9533025. A personal residence does not include any personal property held in the residence, such as household furnishings. Regs. § 25.2702-5(b)(2)(ii) and (c)(2)(ii).

b. Two Personal Residence Trust Limitation. If, at the time of transfer to either a personal residence trust or qualified personal residence trust, the term holder is already the grantor of two trusts in which he or she currently holds term interests, IRC § 2702 will apply and the term interest retained by the grantor will be valued at zero. Trusts holding fractional interests in the same residence are treated as one trust for this purpose. Reg. §25.2702-5(a)(1).

c. Restrictions on Use of Residence. The regulations for both personal residence trusts and qualified personal residence trusts provide that a residence qualifies only if it

21 4601929v1 is not occupied by any person other than the term holder and his or her spouse and dependents and is available at all times for use by the interest holder as a personal residence. Regs. § 25.2702-5(b)(1) and (c)(7). Nevertheless, a residence will not fail to qualify simply because is occupied by houseguests or other individuals who use the residence rent-free at the grantor’s invitation. PLRs 200023020 and 9718007. If, however, the trustee rents the house to a third party, the residence would no longer qualify because it would not be held for use as the grantor’s personal residence. Reg. § 25.2702-5(d), Example 5. But see, PLR 9609015 (lease of a portion of premises did not affect qualification as personal residence).

d. Restrictions on Sale of Residence. The trust instrument for both types of personal residence trusts must prohibit the residence from being sold or transferred, directly or indirectly, to the grantor, the grantor’s spouse, or an entity controlled by the grantor or the grantor’s spouse, during or at any time after the original duration of the term interest of the trust during which the trust is a grantor trust. Regs. § 25.2702-5(b)(1) and (c)(9). If the grantor dies during the trust term, however, the trust instrument may permit a distribution (without consideration) of the residence to any person, including the grantor’s estate, and may give the grantor a power of appointment over the residence. Moreover, the trust instrument may direct an outright distribution of the residence (without consideration) to the grantor’s spouse upon the expiration of the retained trust term. Regs. § 25.2702-5(b)(1) and (c)(9).

e. Co-Ownership by Spouses. Spouses having interests in the same residence may transfer their interests in the residence to the same personal residence trust. The trust instrument must provide that no person other than one of the spouses may hold a term interest in the trust concurrently with the other spouse. Regs. § 25.2702-5(b)(2) and (c)(2).

5. Personal Residence Trusts: Additional Requirements.

a. Assets of Trust. A personal residence trust must be prohibited by the terms of the governing instrument from holding, for the original duration of the term interest, any asset other than: (i) one residence to be used or held for use as a personal residence of the term holder; and (ii) “qualified proceeds.” Reg. § 25.2702-5(b)(1). “Qualified proceeds” are proceeds payable as a result of damage to or destruction or involuntary conversion of the residence. The trust instrument must provide that such proceeds (and any income thereon) are reinvested in a personal residence within two years from the date of receipt of the proceeds. Reg. § 25.2702-5(b)(3). Trust expenses must, therefore, be paid from non-trust funds; any rents generated by the property must be paid to the term holder and may not be added to the trust. Reg. § 25.2702-5(b)(1).

b. Sale During Trust Term Prohibited. A trust will not meet the requirements of a personal residence trust if the trust instrument permits the residence to be sold or transferred (even to independent third parties) during the trust term. Reg. § 25.2702-5(b)(1).

6. Qualified Personal Residence Trusts: Benefits and Additional Requirements.

a. Advantages of Qualified Personal Residence Trust. A qualified personal residence trust (“QPRT”) is more flexible than a personal residence trust because it may: (1) hold

22 4601929v1 assets other than the residence, such as additions of cash for the payment of expenses, improvements, and insurance policies; (2) authorize sale of the residence during the retained term and reinvestment of the proceeds in another residence; (3) permit improvements to the residence to be added the trust; and (4) be converted to a GRAT if it ceases to satisfy the requirements of a QRPT. Regs. § 25. 2702-5(c)(5) - (8).

b. Trust May Hold Cash. The trust instrument for a QPRT may permit additions of cash to the trust and authorize the trust to hold such cash in a separate account. Reg. § 25.2702-5(c)(5)(ii)(A)(1). However, the amount of cash held may not exceed the amount needed to pay trust expenses, such as insurance, repairs, mortgage payments or improvements, already incurred or reasonably expected to be paid by the trust within six months from the addition. Reg. § 25.2702-5(c)(5)(ii)(A)(1)(i) and (ii). The trust instrument may also permit cash contributions to the trust to acquire the initial personal residence or replacement residence, within three months from the date the trust is created or of the addition, as the case may be, if the trustee has previously entered into a contract to purchase the initial residence or to acquire a replacement residence. Regs. §25.2702-5(c)(5)(ii)(A)(1)(iii) and (iv).

c. Insurance and Insurance Proceeds. A QPRT may also hold insurance policies on the residence and the proceeds from such policies payable to the trust as a result of damage or destruction to the residence. Such insurance proceeds may be held in a separate account. Reg. § 25.2702-5(c)(5)(ii)(D).

d. Sale During Trust Term Allowed. The trust instrument may permit the sale of the residence (to independent third parties) and may permit the trust to hold the proceeds in a separate account. Reg. § 25.2702-5(c)(5)(ii)(C). This is the most significant distinguishing feature between the personal residence trust and qualified personal residence trust.

e. Distributions. The trust instrument must: (i) require that trust income be distributed to the term holder not less frequently than annually; (ii) prohibit distributions of trust principal to any beneficiary other than the transferor prior to the expiration of the retained trust term; and (iii) if additions of cash are permitted, require that the trustee determine not less frequently than quarterly, the amounts held by the trust for payment of expenses in excess of what is permitted, and require that those amounts be distributed immediately to the term holder. Regs. § 25.2702-5(c)(3), (4) and (5)(ii)(A)(2).

d. Commutation. The trust instrument must prohibit prepayment of the term holder’s interest. Reg. § 25.2702-5(c)(6). This prohibition does not seem to apply to personal residence trusts.

e. Cessation and Conversion. The trust instrument must provide for cessation of the trust if the residence ceases to be used or held for use as a personal residence by the term holder. Reg. § 25.2702-5(c)(7). The trust instrument must further provide that the trust ceases to be a qualified personal residence trust upon the sale of the residence unless the trust instrument permits the trust to hold the proceeds of sale in a separate account. Reg. § 25.2702- 5(c)(7). If the trust instrument does permit the proceeds of sale to be held in a separate account, it must provide that the trust ceases to be a qualified residence trust with respect to all proceeds

23 4601929v1 of sale held by the trust upon the earlier of : (i) two years after the date of sale; (ii) the termination of the term holder’s interest in the trust; and (iii) the date on which a new residence is acquired by the trust. Reg. § 25.2702-5(c)(7). Accordingly, sale of the residence does not result in cessation of the trust if a new residence is purchased within two years. If a cessation of the trust does occur, the trust assets must, within thirty days of cessation, be distributed outright to the transferor or rolled over into a qualified annuity trust for the balance of the term holder’s term. Reg. § 25.2702-5(c)(8). If the trust is converted into a GRAT, the amount of the annuity payment back to the grantor may not be less than the amount produced by dividing the lesser of the value of all interests retained by the term holder (as of the date of the original transfer) or the value of all trust assets as of the conversion date by the annuity factor for the original term of the holder’s interest and the date of the original transfer. Reg. § 25.2702-5(c)(8)(ii).

7. If Grantor Dies During Trust Term the Tax Advantage is Lost. If the grantor dies before the end of the retained term, the value of the residence including any appreciation through the date of the donor’s death is includible in the grantor’s gross taxable estate under IRC § 2036 and is subject to estate tax. (A credit will be given for gift tax previously paid in respect of the transfer to the QPRT.) For estates of decedents dying after July 13, 2008, the IRS will include in the grantor’s estate, only that portion of the personal residence trust or QPRT principal necessary to provide the retained use (without reducing or invading principal) if the grantor does not survive the trust term. The portion of the trust principal includible in the grantor’s estate under IRC 2036 shall not exceed the fair market value of the trust’s principal at the decedent’s date of death. See Regs. §§ 20.2036-1(c)(2)(i), (iv), Ex. 6, (3), 20.2039-1(e), (f).

8. Sample QPRT. Rev. Proc. 2003-42 contains an annotated sample QPRT for a single term holder that meets the requirements of § 2702(a)(3)(A) and § 25.2702-5(c).

IV. REPORTING OF GIFTS: AN OVERVIEW

A. Filing Due Date. Federal gift tax returns (Form 709) are required to be filed and gift tax paid at the same time the donors’ federal income tax return is due – April 15 of the year following the calendar year in which the gifts were made, or on the due date of any applicable extensions for filing and paying the tax.10 If the donor is granted an extension of time to file his or her income tax return, the extension is deemed to have been granted for his or her gift tax return as well, but the extension may not be for longer than six months. Regs. §§ 25.6075-1 and 25.6081-1(a). A donor who is not requesting an extension of time to file his or her income tax return may receive an automatic six-month extension of time to file Form 709 by filing Form 8892 by the later of (1) the original return due date or (2) the expiration of any extension of time to file granted under Reg. 1.6081-5.

B. No Tax Return Required for Annual Exclusion Gifts. No gift tax return need be filed unless the annual gifts to any one donee exceed $10,000, now, $14,000. Reg. § 25.6019- 1(a).

10 If the donor dies in the year gifts were required to be reported, the due date for Form 709 may be sooner. Reg. § 25.6075-1.

24 4601929v1

C. Filing of Gift Tax Returns for Split Gifts. If both spouses consent to gift-splitting but only one spouse actually made the gifts, the other spouse is not required to file a gift tax return if the total gifts to each donee do not exceed $28,000 in any given calendar year and no portion of the property transferred constitutes a gift of a future interest (as discussed below). Reg. § 25.2513-1(c). The donor spouse is not required to file a gift tax return unless total annual gifts to any donee exceed the $14,000 annual exclusion.

D. Finality of Reported Gift Tax Values. The IRS may not revalue prior gifts for purposes of determining the available applicable credit amount and appropriate transfer tax bracket if the gift was “adequately disclosed” on a gift tax return and the time for assessing the gift tax has expired. IRC § 2504(c).

1. Three-Year Statute of Limitations. The limitations period within which additional gift tax may be assessed by the IRS is three years from the date the gift tax return is filed. IRC § 6501(a). Reporting the transfer as a completed gift will start the gift tax statute of limitations, even if the transfer is later determined to be an incomplete gift, but the disclosure of a transfer as an incomplete gift will not start the assessment period even if the transfer is later determined to be a completed gift. Reg. § 301.6501(c)-1(f)(5). The period of assessment on a completed transfer that is reported as not constituting a gift will start to run only if the transaction is adequately disclosed in accordance with Reg. § 301.6501(c)-1(f)(2) and an explanation as to why the transfer is not a gift is provided. Reg. § 301.6501(c)-1(f)(4). Once the limitations period expires, presuming adequate disclosure has been made, the amount of the gift as reported on the gift tax return may not be adjusted for the purpose of determining future gift and estate tax liability. IRC § 2001(f).

a. Unreported Gifts. In the case of a gift that is required to be "shown" on a return, but which is not shown, the gift tax may be assessed at any time. IRC § 6501(c)(9).

2. Adequate Disclosure. A transfer will be considered adequately disclosed only if “it is reported in a manner adequate to apprise the Internal Revenue Service of the nature of the gift and the basis for the value so reported.” Reg. § 301.6501(c)-1(f)(2). Information required to be provided to the IRS is as follows:

(i) A description of the transferred property and any consideration received for the transfer; (ii) The identity of the transferee and his or her relationship to the donor; (iii) If the property is transferred in trust, the trust’s tax identification number and either a brief description of the terms of the trust or a copy of the trust instrument; (iv) A detailed description of the method used to ascertain the fair market value of the property, including any financial data that was utilized in determining the value of the interest, any restrictions of the property that were considered in determining its value, and a description of any discounts (such as discounts for blockage, minority or fractional interests, and lack of marketability) claimed in valuing the property; and

25 4601929v1 (v) A statement describing any position taken on the gift tax return that is contrary to any proposed, temporary or final Treasury Regulations or Revenue Rulings published at the time the transfer was made.

a. Disclosure of Gifts of Actively Traded Securities. Where the gift is of an interest that is actively traded on an established exchange (such as the New York Stock Exchange or NASDAQ), the tax return must disclose the exchange where the interest is listed, the CUSIP number of the security, and the mean between the highest and lowest selling prices on the date of the transfer. Reg. § 301.6501(c)-1(f)(2).

b. Disclosure of Gifts Not Actively Traded. Where the gift is of an interest in an entity that is not actively traded (such as a partnership or corporation), the tax return must disclose any discount claimed in valuing the interests in the entity or any assets owned by the entity. Reg. § 301.6501(c)-1(f)(2).

c. Disclosure Must Be Made At Every Level of the Transaction. If an entity that is the subject of the transfer owns, either directly or indirectly, an interest in another entity that is not actively traded, the information set forth above must be provided for each entity if the information is relevant and material in determining the value of the interest. Reg. § 301.6501(c)- 1(f)(2).

d. Donor May Submit Appraisal. As an alternative to providing a detailed description of the method used to ascertain fair market value (as required by Reg. § 301.6501(c)- 1(f)(2)(iv)), the donor may submit an appraisal of the property. Reg. § 301.6501(c)-1(f)(3). The regulations contain specific requirements that must be met with respect to the qualifications of the appraiser and the contents of the appraisal. See, Reg. § 301.6501(c)-1(f)(3).

3. Separate Disclosure Rules for Transfers Made under Chapter 14. The regulations provide a completely separate yet similar set of disclosure requirements with respect to transfers made under the special valuation rules of IRC §§ 2701 and 2702. See, Reg. § 301.6501(c)-1(e). In the event disclosure is not made in accordance with the requirements described below, the statute of limitations on the assessment and collection of gift tax does not begin to run and gift tax on the transfer may be assessed at any time. Regs. § 301.6501(c)-1(e)(1) and (f)(1). With respect to transfers of property subject to Chapter 14, the gift tax return must set forth:

(i) A description of the transferred and retained interests and the method used to value each; (ii) The identities and relationships of all parties involved in the transaction and all parties related to the donor holding an equity interest in any entity involved in the transaction; and (iii) A detailed description (including all actuarial factors and discount rates used) of the method used to value the gift, including, in the case of an equity interest in an entity that is not actively traded, the financial and other data used in determining value. (Financial data should include balance sheets and statements of net earnings, operating results, and dividends paid for each of the five years preceding the gift.)

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4. Benefits of Disclosure. If adequate disclosure is properly made, the IRS loses not only the right to assess gift tax after three years, but also loses the right to challenge legal issues relating to the transfer, such as whether the transfer is entitled to application of the annual exclusion.

27 4601929v1

TAX LAW UPDATE

MERRIE JEANNE WEBEL, ESQ. 315 Madison Avenue, Ste. 901 New York, New York 10017 (212) 886‐9030 – direct

NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

Table of Contents

I. FEDERAL ESTATE and GIFT TAXATION: A Short Review of Pertinent Changes ...... 2 A. The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) ...... 2 1. State Death Tax Credit Replaced with State Death Tax Deduction under “EGTRRA” ...... 3 B. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Act”) ...... 3 1. Estate Tax ...... 4 2. Gift Tax ...... 4 3. GST Tax ...... 4 C. 2010 and the Introduction of Portability ...... 4 1. How to Make the Federal Portability Election ...... 5 2. Opting Out of Portability ...... 6 3. The Last Deceased Spouse ...... 6 4. Why bother with Estate Planning? ...... 8 D. The American Taxpayer Relief Act of 2012 ...... 8 II. NEW YORK ESTATE AND GIFT TAX REVIEW ...... 9 A. The “Sop” Tax ...... 9 B. New York’s 2014 Estate Tax Reform ...... 10 1. Resident v. Non‐Resident ...... 11 2. Inclusion of New York Resident and Non‐Resident Taxable Estate Assets ...... 12 C. Gifts ...... 14 D. GST Tax...... 14 E. Trust Income Tax and the New “Throw‐back” Tax ...... 15 F. ING Trusts ...... 15 G. Valuation ...... 15 H. QTIP Elections and Portability ...... 15 I. Planning for Portability and the QTIP Election...... 16 J. New York Estate Tax Rates ...... 17 K. The New York Estate Tax “CLIFF” ...... 17 III. APPENDIX ...... 20 A. Form 706: Federal Estate Tax Return ...... 20 B. Form 709: Federal Gift Tax Return ...... 20 C. Form E.T. 706: New York State Estate Tax Return ...... 20 D. Form E.T. 141: New York State Domicile Affidavit ...... 20

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NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

NYSBA TRUST & ESTATE SECTION: PROBATE and ADMINISTRATION of ESTATES

FALL 2016 TAX LAW UPDATE

The following materials are not intended to be a complete analysis of Federal and New York estate taxation; to do that would be encyclopedic and beyond the scope of this presentation. The purpose of this writing is to consolidate and review, comprehensively, the history of gift and estate tax law and how it has influenced New York and federal estate planning since the introduction of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). EGTRRA has dramatically increased the amount of assets Americans can pass on as gifts and at death tax free. This, in turn, has changed our techniques and tools for estate planning and administrative choices.

I. FEDERAL ESTATE and GIFT TAXATION: A Short Review of Pertinent Changes a) B. The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”)

As attorneys we continue to practice in the era of the Bush tax reforms. From 2001 to present EGTRRA has controlled or affected the way we plan an estate and advise on family succession matters. On June 6, 2001 President George W. Bush signed into law Public Law 107-16, or The Economic Growth and Tax Relief Reconciliation Act of 2001, better known as “EGTRRA.” One of the most important provisions of EGTRRA was Section 501. Section 501’s main goal was the phase-out and eventual repeal in 2010 of the estate and generation-skipping transfer taxes and the increase in the gift tax exemption to $1 million with carryover basis.1 In addition, EGTRRA added several sections to the Internal Revenue Code, some which have been repealed and others still in effect today, e.g., IRC § 2056(A)(b)(1)(A) which deals with the tax on any post December 31, 2009 distribution made from a qualified domestic trust (“QDOT”) to a non-citizen spouse before January 1, 2021.2 EGTRRA contained a “sunset” provision, effective December 31, 2010, applicable to the estate, gift and generation-skipping transfer tax changes it enacted in 2001. The “sunset” provision was compelled by the Congressional Budget Acts of 1974 and 1990. The Budget Acts require a vote

1“EGTRRA” or the “Tax Act of 2001,” §§501(a), 501(b). 2 IRC § 2056. Page 2 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update of 60 senators to make permanent a bill that would decrease annual government revenues for more than ten years. Thus, on January 1, 2011 the law in effect before June 7, 2001 was scheduled to be revived.3 Most importantly, this meant that the Federal applicable exclusion amount would have returned to $1,000,000 along with the maximum tax rate of 55% for both gift and estate tax, the 5% surtax on taxable estates between $10,000,000 and $17,184,000 would have been restored, and the GST tax rate of 55% with a $1,000,000 exemption would return. Other tax changes would be restored and repealed, including the date of death basis rules being restored (the carryover basis therefore being repealed), several changes to the GST tax provisions would be repealed, and the state death tax credit would be restored.4

1. State Death Tax Credit Replaced with State Death Tax Deduction under “EGTRRA”

EGTRRA phased out the state death tax credit between 2001 and 2005 and replaced it with an unlimited state death tax deduction for decedents dying after December 31, 2004.5 This had the gravest effect upon the Sop tax states, of which New York was one. If the credit was claimed properly by the states, it was refunded by the federal government and acted almost like a subsidy. This federal subsidy to the states was now gone. Equally to the individual, a credit is better than a deduction. Although an unlimited death tax deduction seems advantageous, it may increase the amount of death taxes an individual will pay. Remember a credit is taken above the line while a deduction is taken below the line. Deductions depend on a taxpayer’s income tax rate and their tax liability before applying the deduction. Deductions cannot reduce taxable income below zero. A tax credit, on the other hand, is a dollar to dollar credit and has the same value to all taxpayers. A taxpayer must, however, have a liability equal to the credit to take complete advantage of it.

C. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Act”)

On December 17, 2010 President Obama signed into law the 2010 Tax Act passed by Congress just one day earlier. The essence of the 2010 Tax Act was to extend the tax laws of EGTRRA through 2012 creating a new “sunset” or expiration date of December 31, 2012. Thereafter, the estate, gift and GST taxes would revert back to the June 6, 2001 rates on January 1, 2013.

3 HOWARD M. ZARITSKY, PRACTICAL ESTATE PLANNING AND DRAFTING AFTER THE ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001, ¶1.10 (2001). 4 Sanford J. Schlesinger and Martin R. Goodman, Estate Planning Update 1-85, 25 (Feb. 2013), Course materials, NYSBA Probate and the Administration of Estates (2014). 5 ZARITSKY, supra note 3, ¶ 1.04.

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1. Estate Tax

What the 2010 Tax Act did for estate and gift tax matters was reinstate the 2009 applicable exclusion amount of $3.5 million for estate taxes along with the maximum estate tax rate of 45%. (EGTRRA provided for no estate tax in 2010 with the value of the estate determined by employing a modified carryover basis as opposed to an income tax cost basis equivalent to the federal estate tax valuation, better known as a “step-up” in basis.) For decedents whose death occurred between 2010 and 2012, the 2010 Act increased the applicable exclusion amount for estates to five million ($5,000,000). The $5 million applicable exclusion amount was indexed for inflation from 2010, but did not reflect the indexed amount until 2012.6 The maximum estate tax rate was adjusted down to 35%.7 An income tax cost basis equal to the federal estate tax value was available for decedents dying in 2010. Executors had the option of choosing between no estate tax and the modified carryover basis or the $5 million applicable exclusion amount and the income tax cost basis equivalent to the federal estate tax value. The 2010 Act also restored the lesser federal estate tax deduction instead of the credit for state death taxes paid by the estate.

2. Gift Tax

In 2010 and beforehand, the gift tax exemption was $1 million with a maximum gift tax rate of 35%. The 2010 Act increased the gift tax exemption to $5 million for gifts made after 2010, creating a unified gift and estate tax exemption or applicable exclusion amount.

3. GST Tax

No generation-skipping transfer tax (“GST” tax) was imposed in 2010. The 2010 Tax Act created a $5 million GST tax with a maximum tax rate of 35% for transfers occurring after 2010. As with the gift tax, the GST tax was indexed for inflation beginning in 2010, but applied in 2012. The $5 million exemption was available to all estates of decedents dying in 2010 regardless if they elected no estate tax and a modified carryover basis for valuation or the $5 million federal gift tax exemption and the income tax cost basis.8

D. 2010 and the Introduction of Portability

Portability was originally introduced as a temporary provision of the 2010 Tax Act for married couples. Portability, or Post-Mortem estate planning, provides the benefits of taxable estate

6 I.R.C. § 2010(c). 7 I.R.C. § 2001(c). 8 I.R.C. § 2631. Page 4 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update planning, i.e., full use of both spouses’ applicable exclusion amounts, without going through the time and expense of doing the planning. Sounds great!...but, it is limiting in its application to achieve various planning goals and is not given automatically. Portability must be properly elected by the estate’s Executor on the federal estate tax return, Form 706, or it is lost. Portability only applies to U.S. citizens. If the surviving spouse is a non-U.S. citizen, then a qualified domestic trust (“QDOT”) must be used to take advantage of the decedent spouse’s applicable exclusion amount. Portability is defined as the deceased spouse’s unused exclusion (“DSUE”) amount, or the remaining amount of the deceased spouse’s applicable exclusion amount not claimed on the Form 706.9 The DSUE is calculated by subtracting any lifetime taxable gifts and taxable estate from the applicable exclusion amount available in the deceased spouse’s year of death. The remaining amount of the deceased spouse’s applicable exclusion amount is elected on the Form 706 by the surviving spouse and is carried over and combined with the surviving spouse’s applicable exclusion amount for use by the surviving spouse.10 For example, Wife dies in 2016 with an applicable exclusion amount of $5,450,000. Her estate claims $3,000,000 of her applicable exclusion amount which is added to $400,000 of taxable gifts she made over her lifetime. Thus, the wife has used a total of $3,400,000 of her applicable exclusion amount, with a remainder of $2,050,000 still available after her death. The deceased spouse’s Executor elects portability on the estate tax return. The wife’s DSUE, or $2,050,000, is combined with the surviving husband’s applicable exclusion amount, or $5,450,000, so the surviving husband will then have a total applicable exclusion amount of $7,500,000. If the surviving spouse remarries, he may use the DSUE of his deceased spouse for gifts provided the second spouse remains alive. If the second spouse also predeceases him, the first deceased spouse’s DSUE is lost. Only the DSUE of the last deceased spouse may be used when there are multiple marriages.

1. How to Make the Federal Portability Election

The Code provides that the portability election must be made on Form 706 and filed within the time prescribed by law.11 The time prescribed by law is nine months from the decedent’s date of death, with an extension of six months if properly applied for.12 Additional extensions may be obtained from the Service for cause. Non-taxable estates, i.e., estates where both the gross estate and the adjusted taxable gifts do not equal the applicable exclusion amount, may also make the federal portability election to preserve

9 I.R.C. § 2010(c)(2)(A). 10 I.R.C. § 2010(c)(2)(B). See also Louis P. Karol, What Matrimonial Attorneys Need to Know About the Portability Rules for Estate and Gift Taxes and Pre-Nuptial and Post-Nuptial Agreements (2013), Course materials, NYSBA Probate and the Administration of Estates (2014). 11 I.R.C. § 2010(c)(5)(A). 12 I.R.C. § 6075. Page 5 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update the deceased spouse’s applicable exemption amount for the surviving spouse.13 This is achieved by properly filing a Form 706 within the time prescribed by law.14 Estates which file a Form 706 exclusively for electing portability have fewer reporting requirements.

2. Opting Out of Portability

An executor can opt out of portability by either stating so on the Form 706 or by not filing a Form 706 on a timely basis. After the due date for filing the Form 706 has passed, including extensions from the IRS, the election is irrevocable. If an executor has timely opted out of portability, but then changes his/her mind, the Executor can file an additional Form 706 as long as it is within the prescribed time limits.15

3. The Last Deceased Spouse

It may seem odd to address this, but it is necessary to define who the last deceased spouse is. The Code defines the last deceased spouse as the last spouse to predecease the surviving spouse. Portability only applies to the last deceased spouse of U.S. citizens, it does not apply to spouses in the aggregate, such that a serial bride or groom cannot collect DSUE amounts. Example 1: H dies in 2014 with a lifetime gift and estate applicable exclusion amount of $5,340,000. H did not make any gifts nor did he have a taxable estate. W elects portability on the estate tax return and the entire DSUE is transferred to W to use in addition to her own applicable exclusion amount. W now has assets totaling close to $11,000,000. W gifts $5,000,000 to their children from H’s DSUE. W dies in 2016 with her own applicable exemption amount of $5,450,000 and H’s remaining $340,000 DSUE. All assets are transferred out of W’s estate both gift and estate tax free ($5,000,000 in gifts to children from H’s DSUE, remainder of $5,790,000 passing at death - $5,450,000 allocated to W’s applicable exemption amount and the remaining $340,000 from H’s DSUE as he was her last surviving spouse). H and W have successfully transferred $10,790,000 transfer tax free to their children. Example 2: Same facts as above, but Wife does not make a gift of $5,000,000 to her children from H1’s DSUE nor does she consult her estate planning attorney. Instead, she consults her son, the jeweler, he tells her that “the new $5million plus that goes up every year,” i.e., the increased applicable exemption amounts that took effect in 2011, plus this new “no estate planning” option called portability has her covered. Wife gifts $1,340,000 to her children after her Husband’s (“H1”) death in 2014. In 2015, Wife remarries. Husband 2 (H2) is also a widower worth approximately the same as Wife. H2 gifted $5,000,000 after his wife’s death in 2014 to his children using his deceased wife’s DSUE. Upon hearing this, Wife decides to gift

13 Treas. Reg. § 20.2010-1(T),(2). 14 I.R.C. § 6018. 15 Portability of a Deceased Spousal Unused Exclusion Amount, 80 FR 34279 (2015). Page 6 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update her children an additional $1,000,000 using H1’s DSUE. After almost a year of marriage, H2 passes away the day after Thanksgiving 2015. H2 left $5,430,000, or the equivalent of his own applicable exclusion amount to his children and does not owe any estate tax. Because H2 left everything to his children, there was no remaining DSUE available for Wife to elect under the rules of portability. For the new year, 2016, Wife gifts her children $3,450,000 from H1’s DSUE, for a total gift to her children of $5,790,000. Wife dies in 2016 with an estate of $5,500,000 which she leaves to her children. The applicable exclusion amount for 2016 is $5,450,000. Wife’s estate names both Son and Daughter as co-Executors, but only Son actively administers the estate. Co-Executor Son does not file a Form 706 nor pay any taxes. Co- Executor Son claims his mother’s estate was under the applicable exclusion amount of $5,450,000 after paying her final expenses, his father’s DSUE was used for the remaining gift to him and his sister, and his step-father did not have a taxable estate because he did not have any estate taxes due, so his mother inherited H2’s applicable exemption amount. According to the son, there was only an overage of $50,000 in cash in his mother’s estate that wasn’t covered, so he didn’t feel the estate needed to report it. He could easily hide that amount and avoid having to pay any transfer taxes. W’s daughter sues her co-Executor brother for non-payment of taxes due the IRS on their mother’s estate, plus penalties and interest, after receiving a deficiency letter from the Service.

What went wrong? W properly claimed H1’s DSUE of $5,340,000 in 2014, using a portion of it in 2014 as a $1,340,000 gift to her children and then again in 2015 as a gift of $1,000,000. It did not matter that she remarried. Wife was allowed to continue to use H1’s remaining DSUE because H2 was still alive. The moment H2 dies in 2015, Hs becomes W’s last surviving spouse and she loses the remainder of H1’s DSUE, or $3,000,000 for gifting. H2 did proper estate planning and transferred $10,430,000 to his children estate and gift tax free, but in doing so he used up his entire applicable exemption amount at death. Once an applicable exemption amount is gone, it cannot be used again by a surviving spouse, nor can a surviving spouse revive a previous deceased spouse’s applicable exemption amount who was not her last surviving spouse. Upon W’s death, her executor’s calculations were wrong. Although the value of her estate at death was $5,500,000 and her exemption amount was $5,450,000, leaving only $50,000 as taxable, the son did not take into account the additional $3,450,000 in taxable gifts. The 2014 and 2015 gifts were both covered under H1’s DSUE, so they passed gift tax free. The 2016 gift of $3,450,000 was not covered by H1’s remaining DSUE because H2 was already dead. Additionally, the applicable exemption amount is not indexed for inflation, it attaches at death, e.g., H died in 2014 with an exemption amount of $5,340,000. Because the exemption amount increases by $110,000 in 2016 to $5,450,000, it does not give the surviving spouse the current amount to gift on behalf of the deceased spouse. The 2016 gift of $3,450,000 (this is in

Page 7 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update additional to annual gifts) must be covered by W’s applicable exemption amount, leaving her with only $2,000,000 to be applied at death. W dies with a $3,500,000 taxable estate. It is also noteworthy to mention that the portability regulations provide for examination by the Service of any DSUE amount claimed by a surviving spouse to be part of his or her applicable exclusion amount. The examination of the deceased spouse’s gift tax return, Form 709, is limited to the surviving spouse’s statute of limitation period, not that of the deceased spouse.

4. Why bother with Estate Planning?

As mentioned earlier when we began this discussion on portability, many people (excluding the super wealthy) think they no longer need to do estate planning because their taxable issues are covered. Many couples who are in the $10,000,000 to $11,000,000 range believe they understand the rules of portability well enough so they no longer need to go through the expense, time and soul searching of working through an estate plan now that everything can pass transfer tax free. Portability does not apply to GST tax, and more importantly, it is not allowed in New York state. For some transfer tax purposes credit shelter trusts may not be necessary, but they should still be a first line of defense in planning for tax issues in the future and to achieve non-tax family objectives. The following examples illustrate just some of the benefits of the continued use of credit shelter trusts: Estate tax freezes. Property placed in a credit shelter trust at the first spouse’s death will pass estate tax free when the surviving spouse dies. A credit shelter trust can be an important vehicle in transferring highly appreciable assets. Dynasty trusts. Adding onto the estate tax freezing concept, grandparents can each use their GST tax exemption to benefit grandchildren, great-grandchildren, etc. Protecting a spouse from themselves. Some spouses are not financially savvy and cannot deal with having access to large sums of money, particularly all at once. An elderly spouse’s mental state may change, developing dementia or Alzheimer’s disease. Protecting children from a previous marriage. Protecting the client’s final wishes.

E. The American Taxpayer Relief Act of 2012

The American Taxpayer Relief Act of 2012 (the “2012 Tax Act”) was signed into law on January 2, 2013 bringing permanence to more than a decade of planning ambiguities. The period of “sunset provisions” was over. The 2012 Act retained many of the provisions of both EGTRRA and the 2010 Tax Act reforming the estate, gift and generation skipping transfer tax laws. The $5 million applicable exemption amount (adjusted for inflation from 2010) for estate, gift and GST tax purposes was retained and the joint maximum tax rate was increased from 35%

Page 8 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update to 40%. The inflation adjusted exemption amount for 2016 is $5,450,000 per person and is projected to rise to $5,900,000 by 2019. The 2012 act also continues the “portability” provisions allowing the surviving spouse to carry-over the unused portion of their last deceased spouse’s gift and estate tax exemption if properly elected on the deceased spouse’s estate tax return, Form 706. Portability cannot be applied to the GST tax.

II. NEW YORK ESTATE AND GIFT TAX REVIEW

The State of New York began taxing for inheritance transfers as early as 1885. The New York Inheritance Tax was superseded by a New York Estate Tax in 1930. In 1963, New York adopted an estate tax based on the estate tax provisions of the Federal Internal Revenue Code.16 Both the New York Estate and Gift taxes were repealed by legislature in 1997.17 On January 1, 2000 the state gift tax was permanently repealed for gifts made on that day and thereafter and the independent state estate tax was repealed for deaths occurring on or after February 1, 2000.

A. The “Sop” Tax

The New York estate tax was replaced with a “sop” tax. The new “sop” tax was limited to the credit allowed against the federal estate tax.18 The manner in which a “sop” tax works is that it only imposes tax limited to the amount of the federal credit. It is limited to the amount needed to sop up the federal credit. The amount of the “sop” tax paid to New York was calculated on the federal estate tax return. If New York failed to collect the estate tax, the credit evaporated and the tax monies passed to the federal government. This “sop” tax on the federal credit was the same taxing scheme used at the time by the state of Florida. The theory behind using a Florida style tax was that New York would stop losing its citizens and tax revenues to Florida. Unfortunately, with the introduction of EGTRRA in 2001, the sop tax and the benefits of its credits to the State were short lived in New York. EGTRRA repealed the estate tax credit over four years and replaced it with an estate tax deduction in 2005. Post 2005, state estate taxes due to the State are a deduction on the federal estate tax return rather than a credit. After the elimination of the state death tax credit, many states that could establish a state estate tax did. Florida was constitutionally prohibited from doing so exclusively through its

16 MARILYN M. RUBIN, A GUIDE TO NEW YORK STATE TAXES: HISTORY, ISSUES AND CONCERNS 14-2 (FEB. 2011). 17 1997N.Y. Laws ch. 389, §7. 18 Tax Law § 952. Page 9 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update legislature.19 This is just one of the reasons Florida remains such a popular retirement venue for New Yorkers and those from other states with high estate and/or inheritance taxes.

When New York repealed its estate tax in 2000 it did not attach itself to any federal tax laws, then or in the future. New York law states that any tax law which is imposed, continued or revived by the State cannot refer or be fixed by any other law, i.e., federal estate tax law, unless it is in regard to income tax.20 New York’s estate tax repeal was tied to the state death tax credit of July 22, 1998. New York’s estate tax conformed to the IRS, with amendments, enacted on or before July 22, 1998, which predates EGTRRA (2001) and the increase in the applicable exclusion amount (unified credit). For New York state residents, the state death tax filing requirement for those whose date of death was on or after June 10, 1994, but before October 1, 1998 was $115,000.21 A reversion back to $115,000 triggering New York gross estate taxes was definitely an inducement for New York residents to change their domicile to Florida, or any other state that offered more favorable state estate tax laws. Today, New York like many other states has decoupled itself from the federal law.

B. New York’s 2014 Estate Tax Reform

Chapter 59 of the Laws of 2014 (Part X) significantly changed estate planning for New Yorkers and those owning tangible property in the state of New York. The most notable aspect of the 2014 tax reform was that it increased the basic exclusion amount from $1 million per person before April 1, 2014 to $2,0625,000 per person with a gradual annual increase until April 1, 2017 to $5,250,000. In 2019, the New York exemption is anticipated to be $5,900,000 per person and linked to the federal exemption amount.

Death on or After: Death Before: Basic Exclusion Amount*

April 1, 2014 April 1, 2015 $2,062,500 April 1, 2015 April 1, 2016 $3,125,000 April 1, 2016 April 1, 2017 $4,187,500 April 1, 2017 January 1, 2019 $5,250,000

19 Michael E. O’Connor, New York Estate and Gift Taxes, in ESTATE PLANNING AND WILL DRAFTING IN NEW YORK 3-3, 3-4 (Michael E. O’Connor, ed., NYSBA (2015 Revision). 20 N.Y. Const., Art. 3, § 22 (Am. Jan. 1, 2014). 21 Tax Law § 951(a). See also N.Y.S. Dept. Tax and Fin., N.Y.S. Estate Tax Return, Form ET-90-P (for estates of decedents dying aft. May 2, 1990 and bef. Feb. 1, 2000). Page 10 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

*For decedents dying on or after January 1, 2019, the New York basic exclusion amount will be linked to the federal estate tax exclusion which is indexed for inflation. It is anticipated to be $5,900,000 in 2019. The Laws of 2014 also amended the definition of the New York gross estate and taxable estate for residents and nonresidents, created a new temporary three year look-back period for gifts, appealed the New York GST tax, changed the income taxation of certain trusts and effected the use of others, and in some cases will even push certain New Yorkers over “the Cliff.” (See section B(2)(i), for detailed description of the “Cliff.”) The estate tax changes are an estate tax relief to the moderately wealthy but will have little, if any, change for the ultra-wealthy.22

1. Resident v. Non-Resident

As an estate planning counselor, one of the first issues you must address with your client is whether s/he is a resident or non-resident of the state of New York and if s/he is, should a change of domicile be considered. You may have several residences, including a partial or statutory residency, but only one domicile. Whether or not you are a resident of the state of New York will determine what amount of estate tax you will pay the State. If your client maintains a residence in more than one state, where the client is determined to be domiciled will determine his or her tax liability under New York tax law. In New York, an individual is taxed as a resident if: (1) s/he is domiciled in New York,23 or (2) s/he is a “statutory resident.”24 Domicile is one’s permanent and primary home with the intent for it to be so. The state regulations define “domicile, in general, as the place an individual intends to be his permanent home – the place to which he intends to return whenever he may be absent.”25 A statutory resident is someone “who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than [183] days of the taxable year in the state.” Domicile is often a test of individual facts and evidence rather than one of law. Surprisingly for estate tax purposes, the best way to prove that a decedent was not domiciled in New York is to submit an Estate Tax Domicile Affidavit (Form ET-141) provided by the N.Y. State Department of Taxation and Finance. This form addresses the decedent’s residence for the past five years, where the decedent filed his or her taxes, where the decedent was registered to vote and whether he or she voted there, where the decedent was employed, state licenses for motor vehicles, professional and other purposes, etc. The ET-141 acts as an excellent resource when reviewing a client’s domicile and what steps could be taken to effectuate a change in domicile. It is always the taxpayers burden of proof to prove a change in domicile. New York State presumes a continuance of domicile.26

22 TSM-B-14(6)M, New York State Estate Tax Reform (Aug. 25, 2014). 23 Tax Law §605(b)(1)(A). 24 Tax Law §605(b)(1)(B). 25 NYCRR 105.20(d). 26 In re Newcomb’s Estate, 192 N.Y. 238 (1908). Page 11 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

a) The Resident New York Taxable Estate

If a decedent was a resident of the state at the time of his death, the taxable estate is the gross estate minus allowable deductions for determining the federal taxable estate, except for deductions relating to real or personal property located outside the state of New York. The gross estate of a deceased resident is the decedent’s federal gross estate, regardless if a federal estate tax return is filed, minus any real or personal property located outside the state of New York, plus amounts related to limited powers of appointment created before September 1, 1930, plus the value of any gifts given that would have been taxable under IRC § 2503 within three years of the decedent’s death ending on their date of death. N.B., Gifts are not added back into the New York estate if they were either real or personal property located outside the state of New York, or if the gift was made when the decedent was a non-resident of the state of New York, was gifted before April 1, 2014 or will be gifted on or after January 1, 2019.27

b) The Non-Resident New York Taxable Estate

The non-resident taxable estate is computed in the same manner as the taxable estate of a resident and includes any and all real and tangible property located in the state.28 It, however, does not include: The value of intangible property (bank accounts, brokerage accounts, mortgages, bonds, etc.) included in the non-resident decedent’s gross estate.29 Intangible personal property is defined by statue in New York as to what it is not.30 Taxing a non-resident’s intangible personal property for estate tax purposes is constitutionally barred in New York, unless the property was used for business purposes in the state.31

Works of art that are loaned to, or are en route, to a public museum or gallery in New York for exhibition purposes at the time of the decedent’s death. The value of the art would be included in the New York taxable estate if any of the net earnings from the public gallery or museum inure to the benefit of any private stock holder or individual.32

2. Inclusion of New York Resident and Non-Resident Taxable Estate Assets

Let’s look at an example of how this plays out in the real world.

27 TSB-M-14(6)M, supra. 28 Tax Law § 960. 29 TSB-M-14(6)M, supra. 30 Tax Law § 951-a(c). 31 N.Y. Const. art. 16, §3. 32 TSB-M-14(6)M, supra. Page 12 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

Sisters Ann (“A”) and Beth (“B”) are both residents of the state of New York. Upon retirement Ann moves to Boca Raton, Florida and becomes a Florida domiciliary and resident, but keeps her New York apartment, which she owns, to stay in when she visits. Ann also decides that although she loves living in Florida, she has done so well with her brokerage account and advisor in New York she is going to leave her money in New York. Ann decorates her home in Florida in a flamingo theme. On one of her trips to New York, Ann decides to bring some of Florida with her and takes her favorite flamingo print with her. (American Flamingo, value $197,900, Christie’s Rockefeller Plaza, June 25, 2004.) Beth is still employed in New York and plans on staying in her home in Oyster Bay, on Long Island once she retires. Beth is a resident of New York. During the winter of 2014, Beth decides to visit her sister in Boca on her way back from a trip to the Caribbean. Beth invests all her money with a money manager and bank she learnt about in Tortuga before arriving in Boca. In Tortuga, Beth buys a brooch of a Flamingo she gives to her sister. Beth misses her sister and buys a home in Florida to be near her for visits, furnishes it with antiques, and buys an automobile to leave there for when she is in Florida. The Audubon society of New York contacts Ann requesting to borrow a set of original John James Audubon prints she owns, entitled, The Birds of America, valued at $422,500, for a public exhibit they are having in November of 2016. While shopping in NYC, Beth purchases a Flamingo Pink colored handbag at Hermés as a surprise for her sister to use during the gallery opening. She leaves the handbag in Ann’s New York apartment. On a visit to Florida, while in the cab on the way back from the airport, Ann and Beth are hit by a giant flamingo float intended for a parade. Ann and Beth both die instantly.

What assets are included in the sisters’ New York taxable estates? Sister A has changed her domiciliary to Florida and is a non-resident of the state of New York. Only her real and personal tangible property located in New York are subject to New York estate tax. The value of A’s New York apartment will be included in her New York taxable estate, but not her Florida property. A’s brokerage account, although located in and managed in New York, will not be taxable in New York because she has nonresident status. The print, American Flamingo, housed in her New York apartment, and falling into the category of tangible personalty, will be part of her New York taxable estate. The Birds of America prints located in New York at the time of her death will not be part of A’s New York taxable estate because they are on loan to a public gallery in New York exclusively for exhibition purposes. (If the gallery were to reproduce posters of A’s prints and she received a percentage of the sales, those amounts of monies would be includable in A’s New York taxable estate, because the prints were being used to carryon business in the State.) Sister B is a resident of New York state, so all her property, except real and personal property located outside of New York, is subject to New York estate taxation. Thus, B’s New York taxable estate includes her home in Oyster Bay and her Caribbean investments. Even though all

Page 13 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update her investments are located in Tortuga and are being managed there, because B is a New York resident all her intangibles, wherever located worldwide, will be taxed in accordance with New York law. The Florida home, antiques and vehicle will not be taxed as part of B’s New York estate because they are categorized as real and tangible property owned and located outside of the state of New York. Both the Flamingo brooch and the Hermés handbag were tangible gifts made by Beth within three years of her death. The brooch, located in Florida, will not be drawn back into B’s estate because it is located out of state, but the handbag located in her sister’s New York apartment will be drawn back into B’s New York estate. (We can assume that B already made gifts in the amount of the annual exclusion amount of $14,000 to her sister in both 2014 and 2016.)

C. Gifts

Although New York has not had a gift tax since its repeal in 2000, the Laws of 2014 have added a temporary gift tax component to gifts made by New Yorkers between April 1, 2014 and December 31, 2018. This only applies to taxable gifts and does not include annual exclusion gifts of $14,000 per donee or payments made directly for tuition or medical expenses. Gifts made between April 1, 2014 and December 31, 2018 will be added back into the decedent’s estate if made within three (3) years from the decedent’s date of death. Any gifts made when the decedent was not a resident of New York are not included, e.g., decedent moved to New York two year before death and made a gift of $1 million immediately before moving. This gift, even though made within three years of death, is not includable in the decedent’s New York taxable estate as it was made when s/he was a non-resident. The gift add-back, however, appears to include gifts of real and tangible personal property located outside the state of New York, which if owned at death would not have been part of the decedent’s estate.33

D. GST Tax

New York has repealed its GST tax applicable to both taxable distributions and terminations when made to “skip persons.”34 That means that gifts to persons who are two or more generations younger, or 37.5 years younger, than the donor will not be subject to the New York generation skipping transfer tax rate of 16%.

33 TSB-M-14(6)M, supra. 34 Id. Page 14 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

E. Trust Income Tax and the New “Throw-back” Tax

New York beneficiaries may now be subject to a “throw-back” tax on distributions of accumulated income from “New York Resident Trusts.” A “New York Resident Trust” was a trust created by a New York resident that was not taxed for income tax purposes when (1) none of the Trustees were domiciled in New York during the taxable year in question, (2) no trust income or capital gain was derived from a New York source and (3) no real or tangible trust property was located in New York. If the above conditions were met, then the trust would be considered an “exempt trust” for New York income tax purposes. Under the new rules, distributions to New York beneficiaries will be taxed.35 F. ING Trusts

An ING Trust, or what sometimes can be referred to as a “Delaware” or “Nevada Trust,” is an incomplete gift non-grantor trust created by a New Yorker in another state (usually one that is tax favorable) to avoid New York income tax on the income and capital gains earned by the trust without having any current gift tax liability. ING trusts are now treated as grantor trusts for New York purposes and subject to New York income tax. Any New York Resident Trust and/or ING Trust has now become an administrative and accounting nightmare. Additionally, with an ING trust, there will be reporting inconsistency between the State and Federal income tax return for the same trust. For New York state the income will be characterized as derived from a grantor trust, while for federal purposes the income will be reported as coming from a non-grantor Trust.36 G. Valuation

Estates may be valued either on the decedent’s date of death or on the alternate valuation date (six months after the date of death). Whatever valuation is used on the state return must also be used on the federal return and vice versa. If New Yorkers choose not to file a federal return, but want to claim an alternative valuation, they must use the same manner of tax preparation they would have used on the federal return, i.e., alternate valuation cannot be elected unless it will decrease the value of the New York gross estate and tax owed.37

H. QTIP Elections and Portability

A QTIP trust, or marital deduction trust, is a trust created for the benefit of a surviving spouse that qualifies as Qualified Terminable Interest Property (“QTIP”). A QTIP trust qualifies for the

35 Id. 36 Id. 37 Id. Page 15 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update estate tax marital deduction deferring estate taxation until the death of the surviving spouse. A QTIP trust can elect to qualify for a partial marital deduction, eliminating New York estate tax. New York does not provide for a separate QTIP election for state estate tax purposes. Had the legislature supported the QTIP election, New Yorkers could have taken the largest exemption possible for federal tax purposes and claimed a smaller exemption for state tax purposes, avoiding state estate taxation at the first spouse’s death; such an election could cause greater state estate taxation at the surviving spouse’s death if he or she has a large estate. In New York, a QTIP election is not allowed when a federal return is required to be filed and no QTIP election is made on the federal return. A QTIP election is only allowed in New York if it is also elected on the federal return. If no federal estate tax return is required to be filed, then a QTIP election may be made on the New York estate tax return, using a pro forma federal return attached to the New York return. A federal return is required to be filed if the taxable amount of the estate is greater than the federal applicable exemption amount or the estate is not a taxable estate but portability is desired and elected. The Senate version of the budget bill introduced in 2014 included a provision for a separate New York QTIP election to be made when the federal estate tax return was being filed exclusively for electing portability, but that did not make it into the final version of the Executive Budget.38 New York does not provide for spousal portability as part of state estate tax exemption.39 So, if you have a non-taxable federal estate, you must choose between filing a federal estate tax return to elect portability for estate tax preservation, which dictates an outright distribution to your spouse, or not filing a federal return to make the New York QTIP election, providing for more planning flexibility and financial preservation, but wastes the portability exemption.

I. Planning for Portability and the QTIP Election

Portability should not be considered an estate planning tool, but a post-mortem one in most cases unless you are dealing with extremely wealthy clients when a surviving spouse can make a gift of the decedent spouse’s DSUE to a grantor trust for grandchildren or other descendants. New York does not provide for state portability. The Assembly had expressed an interest in including portability for the unused New York exemption, but it was not included in the final Executive Budget, most likely because of the complications it would cause with the “Cliff.”40 (See section B(2)(i), for detailed description of the “Cliff.”). A way to take advantage of portability with larger federally taxable estates is to use basic marital trust planning with a QTIP election to transfer potential estate tax to the second to die. Let’s assume a New York married resident dies with an estate of $15 million and made no taxable gifts. Upon that spouse’s death, two trusts are created, a credit shelter non-qualified trust and a

38 Id. 39 TSB-M-11(9), Supplemental Information on New York State Estate Tax Filing Requirements Related to the Federal 2010 Tax Relief Act (July 29, 2011) 40 TSB-M-14(6)M, supra. Page 16 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update marital trust with a QTIP election. The credit shelter trust would be funded with $4,187,500, using a portion of the first deceased spouse’s federal applicable exclusion amount along with the full New York basic exclusion amount, $4,187,500 for October of 2016. The second trust, or the marital QTIP trust, would be funded with the remaining estate assets, or $10,812,500, for which both the federal and state QTIP elections would be made. The first deceased spouse’s executor would then make a portability election on the federal estate tax return to transfer the DSUE to the surviving spouse. Contingent upon how long the surviving spouse lives, how much of the assets are spent down, and in what state the surviving spouse is domiciled at death will determine if any estate taxes will be due. Seldom should portability be used as the primary strategy for planning a married couple’s estate. New Yorkers must still defer to the old-school use of trusts to both preserve assets at death and reserve the flexibility of making them available to the decedent’s loved ones

J. New York Estate Tax Rates

The New York estate tax rates for a taxable estate for either a resident or non-resident estate are calculated based upon the same rates. The lowest rate on a New York taxable estate for an estate not over $500,000 is 3.06%. The highest New York estate tax rate is 16% for taxable estates over $10,100,000. In 2014, the Governor’s budget bill recommended a rate reduction to 10%, however the Executive Budget retained the top rate at 16%. Estates valued in excess of 105% of the New York basic exclusion amount will pay the same estate tax they would have paid prior to 2014.41 Taxable estates within the 5% of the basic exclusion amount fall into what is termed the “Cliff.”

K. The New York Estate Tax “CLIFF”

The dreaded “Cliff,” don’t fall off or you will end up in a New York state tax abyss; that is, if you died after April 1, 2014 or will die before January 1, 2019. In 2014, the basic exclusion amount in New York rose from $1,000,000 to the following:

Death on or After: Death Before: Basic Exclusion Amount*

April 1, 2014 April 1, 2015 $2,062,500 April 1, 2015 April 1, 2016 $3,125,000 April 1, 2016 April 1, 2017 $4,187,500

41 Id. Page 17 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

April 1, 2017 January 1, 2019 $5,250,000

This increase in the basic exclusion amount is a great benefit to those in the middle and upper- middle classes but quickly ends there. The benefits of the increased basic exclusion amount begin to fade quickly if a decedent’s taxable estate falls within 5% of the maximum New York exclusion amount in the year of death, and disappears completely if the estate exceeds 5%. This 5% phase-out of the basic exclusion amount is referred to as the “CLIFF.” If an estate is within the 5% range of the CLIFF, the phase-out of the increased exclusion amount deteriorates rapidly. The phase-out levels do not give the estate the protection of the basic exclusion amount at all. Taxable estates that exceed the CLIFF phase-out (105%) receive no exemption. The estate is taxed from dollar one ($1.00)! Each percent above the basic exclusion amount (“BEA”), up to four percent (4%), reduces the Applicable Credit Amount (“ACA”) by an additional 20%. In New York, the State imposes a tax on the decedent’s entire taxable estate and allows a credit, the ACA, against the tax. The Applicable Credit Amount (“ACA”) only provides a credit for certain estates and is contingent upon the size of the estate and the date of death. If the New York taxable estate is less than or equal to the BEA, the ACA creates a wash. If the estate is between the BEA and the CLIFF, the ACA is limited and based upon a formula. The formula is calculated by multiplying the BEA by one (1) minus the fraction created. The fraction’s numerator equals the NY taxable estate minus the BEA. The fraction’s denominator equals five percent (5%) of the BEA. If the New York taxable estate is greater than 105% of the BEA, then no credit is allowed.42 The chart below illustrates the time period for when a date of death occurs, the basic exclusion amount (“BEA”), the maximum phase-out amount, the 5% CLIFF amount, the actual amount of New York state tax due, and the marginal rate increase the additional amount is liable for.

Basic Death on or Max. Phase- The 5% NY Estate Marginal Rate Exclusion before: Out Amount CLIFF Tax due Increase Amount 4/1/2014 to 109% or $2,062,500 $103,125 $2,165,625 $112,050 4/1/2015 108.65454% 4/1/2015 to 133% or $3,125,000 $156,250 $3,281,250 $208,200 4/1/2016 133.248% 4/1/2016 to 155% or $4,187,500 $209,375 $4,396,875 $324,050 4/1/2017 155.01076%

42 Id. Page 18 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

4/1/2017 to 164% or $5,250,000 $262,500 $5,512,500 $430,050 1/1/2019 163.82857%

For dates of death occurring after January 1, 2019 the New York BEA will be linked to the Federal applicable exclusion amount which is estimated to be $5,900,000 per person. The New York state estate tax on $5,900,000, provided there is no state estate tax increase, will be $498,800.

These numbers clearly illustrate the onerous tax burden New Yorkers of wealth continue to face and why the State may still have to contemplate the relocation of many of its citizens to more favorable tax climates. The marginal tax rate this year of 155% and rising to 164% is untenable. The concept of the amount of tax (presently $324,050) exceeding the culpable amount ($209,375) is illogical. No estate planning attorney should allow his or her client to fall into the Cliff zone. The good news is, however, we can still achieve favorable planning results and possibly eliminate New York estate tax (contingent upon the size of the estate) by using trusts, such as, credit shelter trusts, and encouraging charitable giving for the amounts that would put an estate over the Cliff.

Page 19 of 20 NYSBA Probate and Administration of Estate Fall 2016 Tax Law Update

III. APPENDIX A. Form 706: Federal Estate Tax Return B. Form 709: Federal Gift Tax Return C. Form E.T. 706: New York State Estate Tax Return D. Form E.T. 141: New York State Domicile Affidavit

Page 20 of 20

United States Estate (and Generation-Skipping Transfer) Form 706 (Rev. August 2013) Tax Return OMB No. 1545-0015 a Estate of a citizen or resident of the United States (see instructions). To be filed for Department of the Treasury decedents dying after December 31, 2012. Internal Revenue Service a Information about Form 706 and its separate instructions is at www.irs.gov/form706. 1a Decedent’s first name and middle initial (and maiden name, if any) 1b Decedent’s last name 2 Decedent’s social security no.

3a City, town, or post office; county; state or province; country; and ZIP or 3b Year domicile established 4 Date of birth 5 Date of death foreign postal code.

6b Executor’s address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) and phone no. 6a Name of executor (see instructions)

6c Executor’s social security number (see instructions) Phone no. 6d If there are multiple executors, check here and attach a list showing the names, addresses, telephone numbers, and SSNs of the additional executors. 7a Name and location of court where will was probated or estate administered 7b Case number Part 1—Decedent and Executor

8 If decedent died testate, check here a and attach a certified copy of the will. 9 If you extended the time to file this Form 706, check here a 10 If Schedule R-1 is attached, check here a 11 If you are estimating the value of assets included in the gross estate on line 1 pursuant to the special rule of Reg. section 20.2010-2T(a) (7)(ii), check here a 1 Total gross estate less exclusion (from Part 5—Recapitulation, item 13) ...... 1 2 Tentative total allowable deductions (from Part 5—Recapitulation, item 24) ...... 2 3a Tentative taxable estate (subtract line 2 from line 1) ...... 3a b State death tax deduction ...... 3b c Taxable estate (subtract line 3b from line 3a) ...... 3c 4 Adjusted taxable gifts (see instructions) ...... 4 5 Add lines 3c and 4 ...... 5 6 Tentative tax on the amount on line 5 from Table A in the instructions ...... 6 7 Total gift tax paid or payable (see instructions) ...... 7 8 Gross estate tax (subtract line 7 from line 6) ...... 8 9a Basic exclusion amount ...... 9a 9b Deceased spousal unused exclusion (DSUE) amount from predeceased spouse(s), if any (from Section D, Part 6—Portability of Deceased Spousal Unused Exclusion). . 9b 9c Applicable exclusion amount (add lines 9a and 9b) ...... 9c 9d Applicable credit amount (tentative tax on the amount in 9c from Table A in the instructions) ...... 9d 10 Adjustment to applicable credit amount (May not exceed $6,000. See instructions.) ...... 10 Part 2—Tax Computation 11 Allowable applicable credit amount (subtract line 10 from line 9d) ...... 11 12 Subtract line 11 from line 8 (but do not enter less than zero) ...... 12 13 Credit for foreign death taxes (from Schedule P). (Attach Form(s) 706-CE.) 13 14 Credit for tax on prior transfers (from Schedule Q) ...... 14 15 Total credits (add lines 13 and 14) ...... 15 16 Net estate tax (subtract line 15 from line 12) ...... 16 17 Generation-skipping transfer (GST) taxes payable (from Schedule R, Part 2, line 10) ...... 17 18 Total transfer taxes (add lines 16 and 17) ...... 18 19 Prior payments (explain in an attached statement) ...... 19 20 Balance due (or overpayment) (subtract line 19 from line 18) ...... 20 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer other than the executor is based on all information of which preparer has any knowledge. F F Sign Signature of executor Date

Here F F

Signature of executor Date Print/Type preparer’s name Preparer’s signature Date PTIN Paid Check if Preparer self-employed Use Only Firm’s name a Firm's EIN a Firm’s address a Phone no. For Privacy Act and Paperwork Reduction Act Notice, see instructions. Cat. No. 20548R Form 706 (Rev. 8-2013) Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: Part 3—Elections by the Executor Note. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Part 6— Portability of Deceased Spousal Unused Exclusion. Note. Some of the following elections may require the posting of bonds or liens. Yes No Please check "Yes" or "No" box for each question (see instructions). 1 Do you elect alternate valuation? ...... 1 2 Do you elect special-use valuation? If “Yes,” you must complete and attach Schedule A-1 ...... 2 3 Do you elect to pay the taxes in installments as described in section 6166? ...... If “Yes,” you must attach the additional information described in the instructions. Note. By electing section 6166 installment payments, you may be required to provide security for estate tax deferred under section 6166 and interest in the form of a surety bond or a section 6324A lien. 3 4 Do you elect to postpone the part of the taxes due to a reversionary or remainder interest as described in section 6163? . 4 Part 4—General Information Note. Please attach the necessary supplemental documents. You must attach the death certificate. (See instructions) Authorization to receive confidential tax information under Reg. section 601.504(b)(2)(i); to act as the estate’s representative before the IRS; and to make written or oral presentations on behalf of the estate: Name of representative (print or type) State Address (number, street, and room or suite no., city, state, and ZIP code)

I declare that I am the attorney/ certified public accountant/ enrolled agent (check the applicable box) for the executor. I am not under suspension or disbarment from practice before the Internal Revenue Service and am qualified to practice in the state shown above. Signature CAF number Date Telephone number

1 Death certificate number and issuing authority (attach a copy of the death certificate to this return).

2 Decedent’s business or occupation. If retired, check here a and state decedent’s former business or occupation.

3a Marital status of the decedent at time of death: Married Widow/widower Single Legally separated Divorced 3b For all prior marriages, list the name and SSN of the former spouse, the date the marriage ended, and whether the marriage ended by annulment, divorce, or death. Attach additional statements of the same size if necessary.

4a Surviving spouse’s name 4b Social security number 4c Amount received (see instructions)

5 Individuals (other than the surviving spouse), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions)

All unascertainable beneficiaries and those who receive less than $5,000 ...... a Total ......

If you answer “Yes” to any of the following questions, you must attach additional information as described. Yes No 6 Is the estate filing a protective claim for refund? ...... If “Yes,” complete and attach two copies of Schedule PC for each claim. 7 Does the gross estate contain any section 2044 property (qualified terminable interest property (QTIP) from a prior gift or estate)? (see instructions) ...... 8 a Have federal gift tax returns ever been filed? ...... If “Yes,” attach copies of the returns, if available, and furnish the following information: b Period(s) covered c Internal Revenue office(s) where filed

9a Was there any insurance on the decedent’s life that is not included on the return as part of the gross estate? ...... b Did the decedent own any insurance on the life of another that is not included in the gross estate? ...... Page 2 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: Part 4—General Information (continued) If you answer “Yes” to any of the following questions, you must attach additional information as described. Yes No 10 Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent’s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? If “Yes,” you must complete and attach Schedule E ...... 11 a Did the decedent, at the time of death, own any interest in a partnership (for example, a family limited partnership), an unincorporated business, or a limited liability company; or own any stock in an inactive or closely held corporation? .... b If “Yes,” was the value of any interest owned (from above) discounted on this estate tax return? If “Yes,” see the instructions on reporting the total accumulated or effective discounts taken on Schedule F or G ...... 12 Did the decedent make any transfer described in sections 2035, 2036, 2037, or 2038? (see instructions) If “Yes,” you must complete and attach Schedule G ...... 13a Were there in existence at the time of the decedent’s death any trusts created by the decedent during his or her lifetime? . . b Were there in existence at the time of the decedent’s death any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship? ...... c Was the decedent receiving income from a trust created after October 22, 1986, by a parent or grandparent? ...... If “Yes,” was there a GST taxable termination (under section 2612) on the death of the decedent? ...... d If there was a GST taxable termination (under section 2612), attach a statement to explain. Provide a copy of the trust or will creating the trust, and give the name, address, and phone number of the current trustee(s). e Did the decedent at any time during his or her lifetime transfer or sell an interest in a partnership, limited liability company, or closely held corporation to a trust described in lines 13a or 13b? ...... If “Yes,” provide the EIN for this transferred/sold item. a 14 Did the decedent ever possess, exercise, or release any general power of appointment? If “Yes,” you must complete and attach Schedule H .... 15 Did the decedent have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? ...... 16 Was the decedent, immediately before death, receiving an annuity described in the “General” paragraph of the instructions for Schedule I or a private annuity? If “Yes,” you must complete and attach Schedule I ...... 17 Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a predeceased spouse under section 2056(b)(7) and which is not reported on this return? If “Yes,” attach an explanation ...... Part 5—Recapitulation. Note. If estimating the value of one or more assets pursuant to the special rule of Reg. section 20.2010-2T(a)(7)(ii), enter on both lines 10 and 23 the amount noted in the instructions for the corresponding range of values. (See instructions for details.) Item no. Gross estate Alternate value Value at date of death 1 Schedule A—Real Estate ...... 1 2 Schedule B—Stocks and Bonds ...... 2 3 Schedule C—Mortgages, Notes, and Cash ...... 3 4 Schedule D—Insurance on the Decedent’s Life (attach Form(s) 712) .... 4 5 Schedule E—Jointly Owned Property (attach Form(s) 712 for life insurance) . 5 6 Schedule F—Other Miscellaneous Property (attach Form(s) 712 for life insurance) 6 7 Schedule G—Transfers During Decedent’s Life (att. Form(s) 712 for life insurance) 7 8 Schedule H—Powers of Appointment ...... 8 9 Schedule I—Annuities ...... 9 10 Estimated value of assets subject to the special rule of Reg. section 20.2010-2T(a)(7)(ii) 10 11 Total gross estate (add items 1 through 10) ...... 11 12 Schedule U—Qualified Conservation Easement Exclusion ...... 12 13 Total gross estate less exclusion (subtract item 12 from item 11). Enter here and on line 1 of Part 2—Tax Computation ...... 13 Item no. Deductions Amount 14 Schedule J—Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims . . . . . 14 15 Schedule K—Debts of the Decedent ...... 15 16 Schedule K—Mortgages and Liens ...... 16 17 Total of items 14 through 16 ...... 17 18 Allowable amount of deductions from item 17 (see the instructions for item 18 of the Recapitulation) . . . . . 18 19 Schedule L—Net Losses During Administration ...... 19 20 Schedule L—Expenses Incurred in Administering Property Not Subject to Claims ...... 20 21 Schedule M—Bequests, etc., to Surviving Spouse ...... 21 22 Schedule O—Charitable, Public, and Similar Gifts and Bequests ...... 22 23 Estimated value of deductible assets subject to the special rule of Reg. section 20.2010-2T(a)(7)(ii) . . . 23 24 Tentative total allowable deductions (add items 18 through 23). Enter here and on line 2 of the Tax Computation 24 Page 3 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: Part 6—Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount. Section B. QDOT Yes No Are any assets of the estate being transferred to a qualified domestic trust (QDOT)? ...... If “Yes,” the DSUE amount portable to a surviving spouse (calculated in Section C, below) is preliminary and shall be redetermined at the time of the final distribution or other taxable event imposing estate tax under section 2056A. See instructions for more details. Section C. DSUE Amount Portable to the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse. 1 Enter the amount from line 9c, Part 2—Tax Computation ...... 1 2 Reserved ...... 2 3 Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions) . . . 3 4 Add lines 1 and 3 ...... 4 5 Enter amount from line 10, Part 2—Tax Computation ...... 5 6 Divide amount on line 5 by 40% (0.40) (do not enter less than zero) ...... 6 7 Subtract line 6 from line 4 ...... 7 8 Enter the amount from line 5, Part 2– Tax Computation ...... 8 9 Subtract line 8 from line 7 (do not enter less than zero) ...... 9 10 DSUE amount portable to surviving spouse (Enter lesser of line 9 or line 9a, Part 2 – Tax Computation) . . 10

Section D. DSUE Amount Received from Predeceased Spouse(s) (To be completed by the estate of a deceased surviving spouse with DSUE amount from predeceased spouse(s)) Provide the following information to determine the DSUE amount received from deceased spouses. E G A C D F DSUE Amount Remaining DSUE Name of Deceased Spouse B Portability If “Yes,” DSUE Year of Form 709 Date of Death Applied by Amount, if any (dates of death after Election Amount Received Reporting Use of DSUE (enter as mm/dd/yy) Decedent to (subtract col. E December 31, 2010, only) Made? from Spouse Amount Listed in col E Lifetime Gifts from col. D) Yes No Part 1 — DSUE RECEIVED FROM LAST DECEASED SPOUSE

Part 2 — DSUE RECEIVED FROM OTHER PREDECEASED SPOUSE(S) AND USED BY DECEDENT

Total (for all DSUE amounts from predeceased spouse(s) applied) .... Add the amount from Part 1, column D and the total from Part 2, column E. Enter the result on line 9b, Part 2—Tax Computation ...... a

Page 4 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE A—Real Estate • For jointly owned property that must be disclosed on Schedule E, see instructions. • Real estate that is part of a sole proprietorship should be shown on Schedule F. • Real estate that is included in the gross estate under sections 2035, 2036, 2037, or 2038 should be shown on Schedule G. • Real estate that is included in the gross estate under section 2041 should be shown on Schedule H. • If you elect section 2032A valuation, you must complete Schedule A and Schedule A-1. Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Alternate Description Alternate value Value at date of death number valuation date

Total from continuation schedules or additional statements attached to this schedule . . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 1.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule A—Page 5 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE A-1—Section 2032A Valuation Part 1. Type of election (Before making an election, see the checklist in the instructions): Protective election (Regulations section 20.2032A-8(b)). Complete Part 2, line 1, and column A of lines 3 and 4. (see instructions) Regular election. Complete all of Part 2 (including line 11, if applicable) and Part 3. (see instructions) Before completing Schedule A-1, see the instructions for the information and documents that must be included to make a valid election. The election is not valid unless the agreement (that is, Part 3. Agreement to Special Valuation Under Section 2032A): • Is signed by each qualified heir with an interest in the specially valued property and • Is attached to this return when it is filed. Part 2. Notice of election (Regulations section 20.2032A-8(a)(3)) Note. All real property entered on lines 2 and 3 must also be entered on Schedules A, E, F, G, or H, as applicable. 1 Qualified use—check one a Farm used for farming, or Trade or business other than farming 2 Real property used in a qualified use, passing to qualified heirs, and to be specially valued on this Form 706. B D A Full value C Value based on qualified use Schedule and item number Adjusted value (with section 2032A from Form 706 (without section 2032A(b)(3)(B) (b)(3)(B) adjustment) (without section 2032A(b)(3)(B) adjustment) adjustment)

Totals ...... Attach a legal description of all property listed on line 2. Attach copies of appraisals showing the column B values for all property listed on line 2.

3 Real property used in a qualified use, passing to qualified heirs, but not specially valued on this Form 706. B D A Full value C Value based on qualified use Schedule and item number Adjusted value (with section 2032A (without section 2032A(b)(3)(B) (without section 2032A(b)(3)(B) from Form 706 adjustment) (b)(3)(B) adjustment) adjustment)

Totals ...... If you checked “Regular election,” you must attach copies of appraisals showing the column B values for all property listed on line 3. (continued on next page)

Schedule A-1—Page 6 Form 706 (Rev. 8-2013) 4 Personal property used in a qualified use and passing to qualified heirs. A B A (continued) B (continued) Schedule and item Adjusted value (with section 2032A Schedule and item Adjusted value (with section 2032A number from Form 706 (b)(3)(B) adjustment) number from Form 706 (b)(3)(B) adjustment)

“Subtotal” from Col. B, below left

Subtotal ...... Total adjusted value ... 5 Enter the value of the total gross estate as adjusted under section 2032A(b)(3)(A). a 6 Attach a description of the method used to determine the special value based on qualified use. 7 Did the decedent and/or a member of his or her family own all property listed on line 2 for at least 5 of the 8 years immediately preceding the date of the decedent’s death? ...... Yes No 8 Were there any periods during the 8-year period preceding the date of the decedent’s death during which the decedent or a member of his or her family: Yes No a Did not own the property listed on line 2? ...... b Did not use the property listed on line 2 in a qualified use? ...... c Did not materially participate in the operation of the farm or other business within the meaning of section 2032A(e)(6)? ...... If you answered “Yes” to any of the above, attach a statement listing the periods. If applicable, describe whether the exceptions of sections 2032A(b)(4) or (5) are met. 9 Attach affidavits describing the activities constituting material participation and the identity and relationship to the decedent of the material participants. 10 Persons holding interests. Enter the requested information for each party who received any interest in the specially valued property. (Each of the qualified heirs receiving an interest in the property must sign the agreement, to be found on Part 3 of this Schedule A-1, and the agreement must be filed with this return.) Name Address A B C D E F G H Identifying number Relationship to decedent Fair market value Special-use value A B C D E F G H You must attach a computation of the GST tax savings attributable to direct skips for each person listed above who is a skip person. (see instructions) 11 Woodlands election. Check here a if you wish to make a Woodlands election as described in section 2032A(e)(13). Enter the schedule and item numbers from Form 706 of the property for which you are making this election a Attach a statement explaining why you are entitled to make this election. The IRS may issue regulations that require more information to substantiate this election. You will be notified by the IRS if you must supply further information. Schedule A-1—Page 7 Form 706 (Rev. 8-2013) Part 3. Agreement to Special Valuation Under Section 2032A

Decedent’s social security number Estate of: There cannot be a valid election unless: • The agreement is executed by each one of the qualified heirs and • The agreement is included with the estate tax return when the estate tax return is filed. We (list all qualified heirs)

, being all the qualified heirs and (list all other persons having an interest in the property required to sign this agreement)

, being all other parties having interests in the property which is qualified real property and which is valued under section 2032A of the Internal Revenue Code, do hereby approve of the election made by , Executor/Administrator of the estate of , pursuant to section 2032A to value said property on the basis of the qualified use to which the property is devoted and do hereby enter into this agreement pursuant to section 2032A(d).

The undersigned agree and consent to the application of subsection (c) of section 2032A with respect to all the property described on Form 706, Schedule A-1, Part 2, line 2, attached to this agreement. More specifically, the undersigned heirs expressly agree and consent to personal liability under subsection (c) of 2032A for the additional estate and GST taxes imposed by that subsection with respect to their respective interests in the above-described property in the event of certain early dispositions of the property or early cessation of the qualified use of the property. It is understood that if a qualified heir disposes of any interest in qualified real property to any member of his or her family, such member may thereafter be treated as the qualified heir with respect to such interest upon filing a Form 706-A, United States Additional Estate Tax Return, and a new agreement. The undersigned interested parties who are not qualified heirs consent to the collection of any additional estate and GST taxes imposed under section 2032A(c) from the specially valued property. If there is a disposition of any interest which passes, or has passed to him or her, or if there is a cessation of the qualified use of any specially valued property which passes or passed to him or her, each of the undersigned heirs agrees to file a Form 706-A, and pay any additional estate and GST taxes due within 6 months of the disposition or cessation. It is understood by all interested parties that this agreement is a condition precedent to the election of special-use valuation under section 2032A and must be executed by every interested party even though that person may not have received the estate (or GST) tax benefits or be in possession of such property. Each of the undersigned understands that by making this election, a lien will be created and recorded pursuant to section 6324B of the Code on the property referred to in this agreement for the adjusted tax differences with respect to the estate as defined in section 2032A(c)(2)(C). As the interested parties, the undersigned designate the following individual as their agent for all dealings with the Internal Revenue Service concerning the continued qualification of the specially valued property under section 2032A and on all issues regarding the special lien under section 6324B. The agent is authorized to act for the parties with respect to all dealings with the Internal Revenue Service on matters affecting the qualified real property described earlier. This includes the authorization: • To receive confidential information on all matters relating to continued qualification under section 2032A of the specially valued real property and on all matters relating to the special lien arising under section 6324B; • To furnish the Internal Revenue Service with any requested information concerning the property; • To notify the Internal Revenue Service of any disposition or cessation of qualified use of any part of the property; • To receive, but not to endorse and collect, checks in payment of any refund of Internal Revenue taxes, penalties, or interest; • To execute waivers (including offers of waivers) of restrictions on assessment or collection of deficiencies in tax and waivers of notice of disallowance of a claim for credit or refund; and • To execute closing agreements under section 7121. (continued on next page)

Schedule A-1— Page 8 Form 706 (Rev. 8-2013) Part 3. Agreement to Special Valuation Under Section 2032A (continued)

Decedent’s social security number Estate of:

• Other acts (specify) a

By signing this agreement, the agent agrees to provide the Internal Revenue Service with any requested information concerning this property and to notify the Internal Revenue Service of any disposition or cessation of the qualified use of any part of this property.

Name of Agent Signature Address

The property to which this agreement relates is listed in Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and in the Notice of Election, along with its fair market value according to section 2031 of the Code and its special-use value according to section 2032A. The name, address, social security number, and interest (including the value) of each of the undersigned in this property are as set forth in the attached Notice of Election.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands at , this day of .

SIGNATURES OF EACH OF THE QUALIFIED HEIRS:

Signature of qualified heir Signature of qualified heir

Signatures of other interested parties

Schedule A-1—Page 9 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE B—Stocks and Bonds (For jointly owned property that must be disclosed on Schedule E, see instructions.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last four columns. Description, including face amount of bonds or number of shares Item and par value for identification. Give CUSIP number. Alternate Value at number Unit value valuation date Alternate value If trust, partnership, or closely held entity, give EIN. date of death CUSIP number or EIN, where applicable

Total from continuation schedules (or additional statements) attached to this schedule . . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 2.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule B—Page 10 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE C—Mortgages, Notes, and Cash (For jointly owned property that must be disclosed on Schedule E, see instructions.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Alternate Value at Description Alternate value number valuation date date of death

Total from continuation schedules (or additional statements) attached to this schedule . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 3.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule C—Page 11 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE D—Insurance on the Decedent’s Life You must list all policies on the life of the decedent and attach a Form 712 for each policy. Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Alternate Value at Description Alternate value number valuation date date of death

Total from continuation schedules (or additional statements) attached to this schedule . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 4.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule D—Page 12 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE E—Jointly Owned Property (If you elect section 2032A valuation, you must complete Schedule E and Schedule A-1.) PART 1. Qualified Joint Interests—Interests Held by the Decedent and His or Her Spouse as the Only Joint Tenants (Section 2040(b)(2)) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, Alternate valuation Value at Alternate value number give EIN. date date of death

CUSIP number or EIN, where applicable 1

Total from continuation schedules (or additional statements) attached to this schedule ..... 1a Totals ...... 1a 1b Amounts included in gross estate (one-half of line 1a) ...... 1b PART 2. All Other Joint Interests

2a State the name and address of each surviving co-tenant. If there are more than three surviving co-tenants, list the additional co-tenants on an attached statement.

Name Address (number and street, city, state, and ZIP code)

Item Enter Description (including alternate valuation date if any). For securities, give CUSIP Includible alternate Includible value at Percentage includible number letter for value date of death co-tenant number. If trust, partnership, or closely held entity, give EIN

CUSIP number or EIN, where applicable 1

Total from continuation schedules (or additional statements) attached to this schedule ..... 2b Total other joint interests ...... 2b 3 Total includible joint interests (add lines 1b and 2b). Also enter on Part 5—Recapitulation, page 3, at item 5 ...... 3 (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.) Schedule E—Page 13 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE F—Other Miscellaneous Property Not Reportable Under Any Other Schedule (For jointly owned property that must be disclosed on Schedule E, see instructions.) (If you elect section 2032A valuation, you must complete Schedule F and Schedule A-1.)

Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. 1 Did the decedent own any works of art, items, or any collections whose artistic or collectible value at date of death Yes No exceeded $3,000? ...... If “Yes,” submit full details on this schedule and attach appraisals. 2 Has the decedent’s estate, spouse, or any other person received (or will receive) any bonus or award as a result of the decedent’s employment or death? ...... If “Yes,” submit full details on this schedule. 3 Did the decedent at the time of death have, or have access to, a safe deposit box? ...... If ‘‘Yes,’’ state location, and if held jointly by decedent and another, state name and relationship of joint depositor.

If any of the contents of the safe deposit box are omitted from the schedules in this return, explain fully why omitted.

Item Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, Alternate valuation Value at Alternate value number give EIN date date of death CUSIP number or EIN, where applicable 1

Total from continuation schedules (or additional statements) attached to this schedule . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 6.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule F—Page 14 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE G—Transfers During Decedent’s Life (If you elect section 2032A valuation, you must complete Schedule G and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Description. For securities, give CUSIP number. If trust, Alternate Value at Alternate value number partnership, or closely held entity, give EIN valuation date date of death

A. Gift tax paid or payable by the decedent or the estate for all gifts made by the decedent or his or her spouse within 3 years before the decedent’s death (section 2035(b)) ...... X X X X X B. Transfers includible under sections 2035(a), 2036, 2037, or 2038: 1

Total from continuation schedules (or additional statements) attached to this schedule . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 7.) ...... SCHEDULE H—Powers of Appointment (Include “5 and 5 lapsing” powers (section 2041(b)(2)) held by the decedent.) (If you elect section 2032A valuation, you must complete Schedule H and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns.

Item Alternate valuation Value at Description Alternate value number date date of death 1

Total from continuation schedules (or additional statements) attached to this schedule . . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 8.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedules G and H—Page 15 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE I—Annuities

Note. Generally, no exclusion is allowed for the estates of decedents dying after December 31, 1984 (see instructions). Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. A Are you excluding from the decedent’s gross estate the value of a lump-sum distribution described in section Yes No 2039(f)(2) (as in effect before its repeal by the Deficit Reduction Act of 1984)? ...... If “Yes,” you must attach the information required by the instructions. Item Description. Alternate valuation Includible alternate Includible value at number Show the entire value of the annuity before any exclusions date value date of death

Total from continuation schedules (or additional statements) attached to this schedule . . TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 9.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule I—Page 16 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE J—Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims a Use Schedule PC to make a protective claim for refund due to an expense not currently deductible. For such a claim, report the expense on Schedule J but without a value in the last column. Note. Do not list expenses of administering property not subject to claims on this schedule. To report those expenses, see instructions. If executors’ commissions, attorney fees, etc., are claimed and allowed as a deduction for estate tax purposes, they are not allowable as a deduction in computing the taxable income of the estate for federal income tax purposes. They are allowable as an income tax deduction on Form 1041, U.S. Income Tax Return for Estates and Trusts, if a waiver is filed to forgo the deduction on Form 706 (see Instructions for Form 1041). Are you aware of any actual or potential reimbursement to the estate for any expense claimed as a deduction on this Yes No schedule? ...... If “Yes,” attach a statement describing the expense(s) subject to potential reimbursement. (see instructions) Item Description Expense amount Total amount number A. Funeral expenses: 1

Total funeral expenses ...... a

B. Administration expenses: 1 Executors’ commissions—amount estimated/agreed upon/paid. (Strike out the words that do not apply.) ...... 2 Attorney fees—amount estimated/agreed upon/paid. (Strike out the words that do not apply.) . . . 3 Accountant fees—amount estimated/agreed upon/paid. (Strike out the words that do not apply.) . .

Expense amount 4 Miscellaneous expenses:

Total miscellaneous expenses from continuation schedules (or additional statements) attached to this schedule ...... Total miscellaneous expenses ...... a TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 14.) ...... a (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule J—Page 17 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE K—Debts of the Decedent, and Mortgages and Liens a Use Schedule PC to make a protective claim for refund due to a claim not currently deductible. For such a claim, report the expense on Schedule K but without a value in the last column. Yes No Are you aware of any actual or potential reimbursement to the estate for any debt of the decedent, mortgage, or lien claimed as a deduction on this schedule? ...... If “Yes,” attach a statement describing the items subject to potential reimbursement. (see instructions) Are any of the items on this schedule deductible under Reg. section 20.2053-4(b) and Reg. section 20.2053-4(c)? . . If “Yes,” attach a statement indicating the applicable provision and documenting the value of the claim. Item Debts of the Decedent—Creditor and nature of debt, and Amount number allowable death taxes 1

Total from continuation schedules (or additional statements) attached to this schedule ...... TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 15.) ...... Item Mortgages and Liens—Description Amount number 1

Total from continuation schedules (or additional statements) attached to this schedule ...... TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 16.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule K—Page 18 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE L—Net Losses During Administration and Expenses Incurred in Administering Property Not Subject to Claims

a Use Schedule PC to make a protective claim for refund due to an expense not currently deductible. For such expenses, report the expense on Schedule L but without a value in the last column. Item Net losses during administration Amount number (Note. Do not deduct losses claimed on a federal income tax return.) 1

Total from continuation schedules (or additional statements) attached to this schedule ...... TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 19.) ...... Item Expenses incurred in administering property not subject to claims. Amount number (Indicate whether estimated, agreed upon, or paid.) 1

Total from continuation schedules (or additional statements) attached to this schedule ...... TOTAL. (Also enter on Part 5—Recapitulation, page 3, at item 20.) ...... (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule L—Page 19 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE M—Bequests, etc., to Surviving Spouse

Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section 20.2010-2T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entry in the last column. Yes No 1 Did any property pass to the surviving spouse as a result of a qualified disclaimer? ...... 1 If ‘‘Yes,’’ attach a copy of the written disclaimer required by section 2518(b). 2a In what country was the surviving spouse born? b What is the surviving spouse’s date of birth? c Is the surviving spouse a U.S. citizen? ...... 2c d If the surviving spouse is a naturalized citizen, when did the surviving spouse acquire citizenship? e If the surviving spouse is not a U.S. citizen, of what country is the surviving spouse a citizen? 3 Election Out of QTIP Treatment of Annuities. Do you elect under section 2056(b)(7)(C)(ii) not to treat as qualified terminable interest property any joint and survivor annuities that are included in the gross estate and would otherwise be treated as qualified terminable interest property under section 2056(b)(7)(C)? (see instructions) . . 3 Item Description of property interests passing to surviving spouse. Amount number For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN QTIP property: A1

All other property: B1

Total from continuation schedules (or additional statements) attached to this schedule ...... 4 Total amount of property interests listed on Schedule M ...... 4 5a Federal estate taxes payable out of property interests listed on Schedule M . . . 5a b Other death taxes payable out of property interests listed on Schedule M .... 5b c Federal and state GST taxes payable out of property interests listed on Schedule M 5c d Add items 5a, 5b, and 5c ...... 5d 6 Net amount of property interests listed on Schedule M (subtract 5d from 4). Also enter on Part 5— Recapitulation, page 3, at item 21 ...... 6 (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule M—Page 20 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE O—Charitable, Public, and Similar Gifts and Bequests

b According to the information and belief of the person or persons filing this return, is any such action planned? . If ‘‘Yes,’’ full details must be submitted with this schedule.

2 Did any property pass to charity as the result of a qualified disclaimer? ...... If ‘‘Yes,’’ attach a copy of the written disclaimer required by section 2518(b). Item Name and address of beneficiary Character of institution Amount number

Total from continuation schedules (or additional statements) attached to this schedule ......

3 Total ...... 3

4a Federal estate tax payable out of property interests listed above . . . . . 4a

b Other death taxes payable out of property interests listed above . . . . . 4b

c Federal and state GST taxes payable out of property interests listed above . 4c

d Add items 4a, 4b, and 4c ...... 4d

5 Net value of property interests listed above (subtract 4d from 3). Also enter on Part 5—Recapitulation, page 3, at item 22 ...... 5 (If more space is needed, attach the continuation schedule from the end of this package or additional statements of the same size.)

Schedule O—Page 21 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE P—Credit for Foreign Death Taxes

List all foreign countries to which death taxes have been paid and for which a credit is claimed on this return.

If a credit is claimed for death taxes paid to more than one foreign country, compute the credit for taxes paid to one country on this sheet and attach a separate copy of Schedule P for each of the other countries. The credit computed on this sheet is for the (Name of death tax or taxes) imposed in (Name of country) Credit is computed under the (Insert title of treaty or statute) Citizenship (nationality) of decedent at time of death (All amounts and values must be entered in United States money.) 1 Total of estate, inheritance, legacy, and succession taxes imposed in the country named above attributable to property situated in that country, subjected to these taxes, and included in the gross estate (as defined by statute) . 1

2 Value of the gross estate (adjusted, if necessary, according to the instructions) ...... 2 3 Value of property situated in that country, subjected to death taxes imposed in that country, and included in the gross estate (adjusted, if necessary, according to the instructions) ...... 3

4 Tax imposed by section 2001 reduced by the total credits claimed under sections 2010 and 2012 (see instructions) 4 5 Amount of federal estate tax attributable to property specified at item 3. (Divide item 3 by item 2 and multiply the result by item 4.) ...... 5 6 Credit for death taxes imposed in the country named above (the smaller of item 1 or item 5). Also enter on line 13 of Part 2—Tax Computation ...... 6 SCHEDULE Q—Credit for Tax on Prior Transfers Part 1. Transferor Information IRS office where estate Name of transferor Social security number Date of death tax return was filed

C Check here a if section 2013(f) (special valuation of farm, etc., real property) adjustments to the computation of the credit were made (see instructions). Part 2. Computation of Credit (see instructions)

Transferor Total Item A, B, & C A B C 1 Transferee’s tax as apportioned (from worksheet, (line 7 ÷ line 8) × line 35 for each column) . . . 2 Transferor’s tax (from each column of worksheet, line 20) ...... 3 Maximum amount before percentage requirement (for each column, enter amount from line 1 or 2, whichever is smaller) ...... 4 Percentage allowed (each column) (see instructions) % % % 5 Credit allowable (line 3 × line 4 for each column) . 6 TOTAL credit allowable (add columns A, B, and C of line 5). Enter here and on line 14 of Part 2—Tax Computation ......

Schedules P and Q—Page 22 Form 706 (Rev. 8-2013) SCHEDULE R—Generation-Skipping Transfer Tax

Note. To avoid application of the deemed allocation rules, Form 706 and Schedule R should be filed to allocate the GST exemption to trusts that may later have taxable terminations or distributions under section 2612 even if the form is not required to be filed to report estate or GST tax. The GST tax is imposed on taxable transfers of interests in property located outside the United States as well as property located inside the United States. (see instructions) Part 1. GST Exemption Reconciliation (Section 2631) and Special QTIP Election (Section 2652(a)(3))

You no longer need to check a box to make a section 2652(a)(3) (special QTIP) election. If you list qualifying property in Part 1, line 9 below, you will be considered to have made this election. See instructions for details.

1 Maximum allowable GST exemption ...... 1

2 Total GST exemption allocated by the decedent against decedent’s lifetime transfers ..... 2 3 Total GST exemption allocated by the executor, using Form 709, against decedent’s lifetime transfers ...... 3

4 GST exemption allocated on line 6 of Schedule R, Part 2 ...... 4

5 GST exemption allocated on line 6 of Schedule R, Part 3 ...... 5

6 Total GST exemption allocated on line 4 of Schedule(s) R-1 ...... 6

7 Total GST exemption allocated to inter vivos transfers and direct skips (add lines 2–6) . . . . 7

8 GST exemption available to allocate to trusts and section 2032A interests (subtract line 7 from line 1) ...... 8

9 Allocation of GST exemption to trusts (as defined for GST tax purposes):

A B C D E GST exemption Additional GST Trust’s inclusion Name of trust Trust’s allocated on lines 2–6, exemption allocated ratio (optional—see EIN (if any) above (see instructions) (see instructions) instructions)

9D Total. May not exceed line 8, above ...... 9D

10 GST exemption available to allocate to section 2032A interests received by individual beneficiaries (subtract line 9D from line 8). You must attach special-use allocation statement (see instructions) . 10 Schedule R—Page 23 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: Part 2. Direct Skips Where the Property Interests Transferred Bear the GST Tax on the Direct Skips

Name of skip person Description of property interest transferred Estate tax value

1 Total estate tax values of all property interests listed above ...... 1 2 Estate taxes, state death taxes, and other charges borne by the property interests listed above . . 2 3 GST taxes borne by the property interests listed above but imposed on direct skips other than those shown on this Part 2 (see instructions) ...... 3 4 Total fixed taxes and other charges (add lines 2 and 3) ...... 4 5 Total tentative maximum direct skips (subtract line 4 from line 1) ...... 5 6 GST exemption allocated ...... 6 7 Subtract line 6 from line 5 ...... 7 8 GST tax due (divide line 7 by 3.5) ...... 8 9 Enter the amount from line 8 of Schedule R, Part 3 ...... 9 10 Total GST taxes payable by the estate (add lines 8 and 9). Enter here and on line 17 of Part 2— Tax Computation ...... 10 Schedule R—Page 24 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: Part 3. Direct Skips Where the Property Interests Transferred Do Not Bear the GST Tax on the Direct Skips

Name of skip person Description of property interest transferred Estate tax value

1 Total estate tax values of all property interests listed above ...... 1 2 Estate taxes, state death taxes, and other charges borne by the property interests listed above . . 2 3 GST taxes borne by the property interests listed above but imposed on direct skips other than those shown on this Part 3 (see instructions) ...... 3 4 Total fixed taxes and other charges (add lines 2 and 3) ...... 4 5 Total tentative maximum direct skips (subtract line 4 from line 1) ...... 5 6 GST exemption allocated ...... 6 7 Subtract line 6 from line 5 ...... 7 8 GST tax due (multiply line 7 by .40). Enter here and on Schedule R, Part 2, line 9 ...... 8 Schedule R—Page 25 SCHEDULE R-1 (Form 706) Generation-Skipping Transfer Tax OMB No. 1545-0015 (Rev. August 2013) Direct Skips From a Trust Department of the Treasury Internal Revenue Service Payment Voucher Executor: File one copy with Form 706 and send two copies to the fiduciary. Do not pay the tax shown. See instructions for details. Fiduciary: See instructions for details. Pay the tax shown on line 6. Name of trust Trust’s EIN

Name and title of fiduciary Name of decedent

Address of fiduciary (number and street) Decedent’s SSN Service Center where Form 706 was filed

City, state, and ZIP or postal code Name of executor

Address of executor (number and street) City, state, and ZIP or postal code

Date of decedent’s death Filing due date of Schedule R, Form 706 (with extensions)

Part 1. Computation of the GST Tax on the Direct Skip

Description of property interests subject to the direct skip Estate tax value

1 Total estate tax value of all property interests listed above ...... 1 2 Estate taxes, state death taxes, and other charges borne by the property interests listed above . . 2 3 Tentative maximum direct skip from trust (subtract line 2 from line 1) ...... 3 4 GST exemption allocated ...... 4 5 Subtract line 4 from line 3 ...... 5 6 GST tax due from fiduciary (divide line 5 by 3.5). (See instructions if property will not bear the GST tax.) ...... 6 Under penalties of perjury, I declare that I have examined this document, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete.

Signature(s) of executor(s) Date

Date

Signature of fiduciary or officer representing fiduciary Date Schedule R-1—Page 26 Form 706 (Rev. 8-2013) Instructions for the Trustee

Introduction Schedule R-1 (Form 706) serves as a payment voucher for the Generation-Skipping Transfer (GST) tax imposed on a direct skip from a trust, which you, the trustee of the trust, must pay. The executor completes the Schedule R-1 (Form 706) and gives you two copies. File one copy and keep one for your records.

How to pay You can pay by check or money order or by electronic funds transfer. To pay by check or money order: • Make it payable to "United States Treasury." • The amount of the check or money order should be the amount on line 6 of Schedule R-1. • Write "GST Tax" and the trust's EIN on the check or money order. To pay by electronic funds transfer: • Funds must be submitted through the Electronic Federal Tax Payment System (EFTPS). • Establish an EFTPS account by visiting www.eftps.gov or calling 1-800-555-4477. • To be considered timely, payments made through EFTPS must be completed no later than 8 p.m. Eastern time the day before the due date.

Signature You must sign the Schedule R-1 in the space provided.

What to mail Mail your check or money order, if applicable, and the copy of Schedule R-1 that you signed.

Where to mail Mail to the Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.

When to pay The GST tax is due and payable 9 months after the decedent’s date of death (shown on the Schedule R-1). You will owe interest on any GST tax not paid by that date.

Automatic You have an automatic extension of time to file Schedule R-1 and pay the GST tax. The extension automatic extension allows you to file and pay by 2 months after the due date (with extensions) for filing the decedent’s Schedule R (shown on the Schedule R-1). If you pay the GST tax under the automatic extension, you will be charged interest (but no penalties).

Additional For more information, see section 2603(a)(2) and the Instructions for Form 706, United States information Estate (and Generation-Skipping Transfer) Tax Return.

Schedule R-1—Page 27 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: SCHEDULE U—Qualified Conservation Easement Exclusion Part 1. Election Note. The executor is deemed to have made the election under section 2031(c)(6) if he or she files Schedule U and excludes any qualifying conservation easements from the gross estate. Part 2. General Qualifications

1 Describe the land subject to the qualified conservation easement (see instructions)

2 Did the decedent or a member of the decedent’s family own the land described above during the 3-year period ending on the date of the decedent’s death? ...... Yes No 3 Describe the conservation easement with regard to which the exclusion is being claimed (see instructions).

Part 3. Computation of Exclusion

4 Estate tax value of the land subject to the qualified conservation easement (see instructions) . 4 5 Date of death value of any easements granted prior to decedent’s death and included on line 10 below (see instructions) .... 5 6 Add lines 4 and 5 ...... 6 7 Value of retained development rights on the land (see instructions) 7

8 Subtract line 7 from line 6 ...... 8

9 Multiply line 8 by 30% (.30) ...... 9 10 Value of qualified conservation easement for which the exclusion is being claimed (see instructions) ...... 10 Note. If line 10 is less than line 9, continue with line 11. If line 10 is equal to or more than line 9, skip lines 11 through 13, enter “.40” on line 14, and complete the schedule. 11 Divide line 10 by line 8. Figure to 3 decimal places (for example, “.123”) ...... 11 Note. If line 11 is equal to or less than .100, stop here; the estate does not qualify for the conservation easement exclusion. 12 Subtract line 11 from .300. Enter the answer in hundredths by rounding any thousandths up to the next higher hundredth (that is, .030 = .03, but .031 = .04) ...... 12 13 Multiply line 12 by 2 ...... 13

14 Subtract line 13 from .40 ...... 14 15 Deduction under section 2055(f) for the conservation easement (see instructions) ...... 15 16 Amount of indebtedness on the land (see instructions) .... 16 17 Total reductions in value (add lines 7, 15, and 16) ...... 17

18 Net value of land (subtract line 17 from line 4) ...... 18

19 Multiply line 18 by line 14 ...... 19 20 Enter the smaller of line 19 or the exclusion limitation (see instructions). Also enter this amount on item 12, Part 5—Recapitulation, page 3 ...... 20

Schedule U—Page 28 Schedule PC Protective Claim for Refund OMB No. 1545-0015 (Rev. August 2013) a To be used for decedents dying after December 31, 2011. File 2 copies of this schedule with Department of the Treasury Internal Revenue Service Form 706 for each pending claim or expense under section 2053. • Timely filing a protective claim for refund preserves the estate's right to claim a refund based on the amount of an unresolved claim or expense that may not become deductible under section 2053 until after the limitation period ends. • Schedule PC can be used to file a protective claim for refund and, once the claim or expense becomes deductible, Schedule PC can be used to notify the IRS that a refund is being claimed. • Schedule PC can be used by the estate of a decedent dying after 2011. • Schedule PC must be filed with Form 706 and cannot be filed separately. (To file a protective claim for refund or notify the IRS that a refund is being claimed in a form separate from the Form 706, instead use Form 843, Claim for Refund and Request for Abatement.) • Each separate claim or expense requires a separate Schedule PC (or Form 843, if not filed with Form 706). • Schedule PC must be filed in duplicate (two copies) for each separate claim or expense.

Part 1. General Information 1. Name of decedent 2. Decedent's social security number

3. Name of fiduciary 4. Date of death

5a. Address (number, street, and room or suite no.) 5b. Room or suite no.

5c. City or town, state, and ZIP or postal code 6. Daytime telephone number

7. Number of Claims. Enter number of Schedules PC being filed with Form 706. If the number is greater than one OR if another Schedule PC or Form 843 was previously filed by or on behalf of the estate, complete Part 3 of this Schedule PC. 8. Fiduciary Check here if this Schedule PC is being filed with the original Form 706 or is being filed by the same fiduciary who filed the original Form 706 for decedent's estate. If a different fiduciary is filing this Schedule PC, see instructions for establishing the legal authority to pursue the claim for refund on behalf of the estate.

Part 2. Claim Information Check the box that applies to this claim for refund. a. Protective claim for refund made for unresolved claim or expense. Amount in contest: b. Partial refund claimed: partial resolution and/or satisfaction of claim or expense for which a protective claim for refund has been filed previously. Date protective claim for refund filed for this claim or expense: Amount of claim or expense partially resolved and/or satisfied and presently claimed as a deduction under section 2053 (do not include amounts previously deducted): c. Full and final refund claimed for this claim or expense: resolution and/or satisfaction of claim or expense for which a protective claim for refund has been filed previously. Date protective claim for refund filed for this claim or expense: Amount of claim or expense finally resolved and/or satisfied and presently claimed as a deduction under section 2053 (do not include amounts previously deducted):

Schedule PC—Page 29 Form 706 (Rev. 8-2013) Decedent’s social security number Estate of: A B C D E F Form 706 Identification of the claim Amount, if any, deducted Amount presently Ancillary expenses Amount of tax Schedule • Name or names of the claimant(s) under Treas. Reg. sections claimed as a estimated/ to be refunded and Item • Basis of the claim or other description of the pending claim or 20.2053-1(d)(4) or 20.2053-4 deduction under agreed upon/paid expense number (b) or (c) for the identified section 2053 for the (Please indicate) • Reasons and contingencies delaying resolution identified claim •Status of contested matters claim or expense •Attach copies of relevant pleadings or other documents

Part 3. Other Schedules PC and Forms 843 Filed by Estate If a Schedule PC or Form 843 was previously filed by the estate, complete Part 3 to identify each claim for refund reported.

A B C D E Indicate whether Internal Revenue office where filed Date filed (1) Protective Claim for Refund; Amount in Contest Date of death (2) Partial Claim for Refund; or (3) Full and Final Claim for Refund 1

To inquire about the receipt and/or processing of the protective claim for refund, please call (866) 699-4083.

(Rev. 8-2013)

Schedule PC—Page 30 Form 706 (Rev. 8-2013) (Make copies of this schedule before completing it if you will need more than one schedule.) Decedent’s social security number Estate of: CONTINUATION SCHEDULE Continuation of Schedule (Enter letter of schedule you are continuing.) Description. Unit value Value at date of Item For securities, give CUSIP number. (Sch. B, E, or Alternate Alternate value death or amount number If trust, partnership, or closely held entity, give EIN. G only) valuation date deductible

TOTAL. (Carry forward to main schedule.) ......

Continuation Schedule—Page 31

United States Gift (and Generation-Skipping Transfer) Tax Return OMB No. 1545-0020 Form 709 a Information about Form 709 and its separate instructions is at www.irs.gov/form709. Department of the Treasury (For gifts made during calendar year 2015) 2015 Internal Revenue Service a See instructions. 1 Donor’s first name and middle initial 2 Donor’s last name 3 Donor’s social security number

4 Address (number, street, and apartment number) 5 Legal residence (domicile)

6 City or town, state or province, country, and ZIP or foreign postal code 7 Citizenship (see instructions)

8 If the donor died during the year, check here a and enter date of death , . Yes No 9 If you extended the time to file this Form 709, check here a 10 Enter the total number of donees listed on Schedule A. Count each person only once a 11 a Have you (the donor) previously filed a Form 709 (or 709-A) for any other year? If "No," skip line 11b ...... b Has your address changed since you last filed Form 709 (or 709-A)? ...... 12 Gifts by husband or wife to third parties. Do you consent to have the gifts (including generation-skipping transfers) made by you and by your spouse to third parties during the calendar year considered as made one-half by each of you? (see instructions.) (If the answer is “Yes,” the following information must be furnished and your spouse must sign the consent shown below. If the answer is “No,” skip lines 13–18.) ...... 13 Name of consenting spouse 14 SSN 15 Were you married to one another during the entire calendar year? (see instructions) ......

Part 1—General Information 16 If 15 is “No,” check whether married divorced or widowed/deceased, and give date (see instructions) a 17 Will a gift tax return for this year be filed by your spouse? (If “Yes,” mail both returns in the same envelope.) . . . . . 18 Consent of Spouse. I consent to have the gifts (and generation-skipping transfers) made by me and by my spouse to third parties during the calendar year considered as made one-half by each of us. We are both aware of the joint and several liability for tax created by the execution of this consent.

Consenting spouse’s signature a Date a 19 Have you applied a DSUE amount received from a predeceased spouse to a gift or gifts reported on this or a previous Form 709? If “Yes,” complete Schedule C ...... 1 Enter the amount from Schedule A, Part 4, line 11 ...... 1 2 Enter the amount from Schedule B, line 3 ...... 2 3 Total taxable gifts. Add lines 1 and 2 ...... 3 4 Tax computed on amount on line 3 (see Table for Computing Gift Tax in instructions) . . . . 4 5 Tax computed on amount on line 2 (see Table for Computing Gift Tax in instructions) . . . . 5 6 Balance. Subtract line 5 from line 4 ...... 6 7 Applicable credit amount. If donor has DSUE amount from predeceased spouse(s), enter amount from Schedule C, line 4; otherwise, see instructions ...... 7 8 Enter the applicable credit against tax allowable for all prior periods (from Sch. B, line 1, col. C) . 8 9 Balance. Subtract line 8 from line 7. Do not enter less than zero ...... 9 10 Enter 20% (.20) of the amount allowed as a specific exemption for gifts made after September 8, 1976, and before January 1, 1977 (see instructions) ...... 10 11 Balance. Subtract line 10 from line 9. Do not enter less than zero ...... 11 12 Applicable credit. Enter the smaller of line 6 or line 11 ...... 12 13 Credit for foreign gift taxes (see instructions) ...... 13 14 Total credits. Add lines 12 and 13 ...... 14 Part 2—Tax Computation 15 Balance. Subtract line 14 from line 6. Do not enter less than zero ...... 15 16 Generation-skipping transfer taxes (from Schedule D, Part 3, col. H, Total) ...... 16 17 Total tax. Add lines 15 and 16 ...... 17 18 Gift and generation-skipping transfer taxes prepaid with extension of time to file ...... 18 19 If line 18 is less than line 17, enter balance due (see instructions) ...... 19 20 If line 18 is greater than line 17, enter amount to be refunded ...... 20 Under penalties of perjury, I declare that I have examined this return, including any accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than donor) is based on all information of which preparer has any knowledge. Sign May the IRS discuss this return with the preparer shown below Here (see instructions)? F Yes No

Signature of donor Date Print/Type preparer’s name Preparer’s signature Date PTIN Paid Check if self-employed

Attach check or money order here. Preparer Use Only Firm’s name a Firm's EIN a Firm’s address a Phone no. For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see the instructions for this form. Cat. No. 16783M Form 709 (2015) Form 709 (2015) Page 2 SCHEDULE A Computation of Taxable Gifts (Including transfers in trust) (see instructions) A Does the value of any item listed on Schedule A reflect any valuation discount? If “Yes,” attach explanation ...... Yes No B ` Check here if you elect under section 529(c)(2)(B) to treat any transfers made this year to a qualified tuition program as made ratably over a 5-year period beginning this year. See instructions. Attach explanation. Part 1—Gifts Subject Only to Gift Tax. Gifts less political organization, medical, and educational exclusions. (see instructions) B G H • Donee’s name and address A C D E F For split Net transfer • Relationship to donor (if any) Item Donor’s adjusted Date Value at gifts, enter (subtract • Description of gift number basis of gift of gift date of gift 1/2 of col. G from • If the gift was of securities, give CUSIP no. column F col. F) • If closely held entity, give EIN

Gifts made by spouse —complete only if you are splitting gifts with your spouse and he/she also made gifts.

Total of Part 1. Add amounts from Part 1, column H ...... a Part 2—Direct Skips. Gifts that are direct skips and are subject to both gift tax and generation-skipping transfer tax. You must list the gifts in chronological order. B • Donee’s name and address G H A • Relationship to donor (if any) C D E F For split Net transfer Item 2632(b) Donor’s adjusted Date Value at gifts, enter (subtract • Description of gift number election basis of gift of gift date of gift 1/2 of col. G from • If the gift was of securities, give CUSIP no. out column F col. F) • If closely held entity, give EIN

Gifts made by spouse —complete only if you are splitting gifts with your spouse and he/she also made gifts.

Total of Part 2. Add amounts from Part 2, column H ...... a Part 3—Indirect Skips. Gifts to trusts that are currently subject to gift tax and may later be subject to generation-skipping transfer tax. You must list these gifts in chronological order. B • Donee’s name and address G H A • Relationship to donor (if any) C D E F For split Net transfer Item 2632(c) Donor’s adjusted Date Value at gifts, enter (subtract • Description of gift number election basis of gift of gift date of gift 1/2 of col. G from • If the gift was of securities, give CUSIP no. column F col. F) • If closely held entity, give EIN

Gifts made by spouse —complete only if you are splitting gifts with your spouse and he/she also made gifts.

Total of Part 3. Add amounts from Part 3, column H ...... a (If more space is needed, attach additional statements.) Form 709 (2015) Form 709 (2015) Page 3 Part 4—Taxable Gift Reconciliation 1 Total value of gifts of donor. Add totals from column H of Parts 1, 2, and 3 ...... 1 2 Total annual exclusions for gifts listed on line 1 (see instructions) ...... 2 3 Total included amount of gifts. Subtract line 2 from line 1 ...... 3 Deductions (see instructions) 4 Gifts of interests to spouse for which a marital deduction will be claimed, based on item numbers of Schedule A . . 4 5 Exclusions attributable to gifts on line 4 ...... 5 6 Marital deduction. Subtract line 5 from line 4 ...... 6 7 Charitable deduction, based on item nos. less exclusions . 7 8 Total deductions. Add lines 6 and 7 ...... 8 9 Subtract line 8 from line 3 ...... 9 10 Generation-skipping transfer taxes payable with this Form 709 (from Schedule D, Part 3, col. H, Total) . . 10 11 Taxable gifts. Add lines 9 and 10. Enter here and on page 1, Part 2—Tax Computation, line 1 . . . . 11 Terminable Interest (QTIP) Marital Deduction. (see instructions for Schedule A, Part 4, line 4) If a trust (or other property) meets the requirements of qualified terminable interest property under section 2523(f), and: a. The trust (or other property) is listed on Schedule A, and b. The value of the trust (or other property) is entered in whole or in part as a deduction on Schedule A, Part 4, line 4, then the donor shall be deemed to have made an election to have such trust (or other property) treated as qualified terminable interest property under section 2523(f). If less than the entire value of the trust (or other property) that the donor has included in Parts 1 and 3 of Schedule A is entered as a deduction on line 4, the donor shall be considered to have made an election only as to a fraction of the trust (or other property). The numerator of this fraction is equal to the amount of the trust (or other property) deducted on Schedule A, Part 4, line 6. The denominator is equal to the total value of the trust (or other property) listed in Parts 1 and 3 of Schedule A. If you make the QTIP election, the terminable interest property involved will be included in your spouse’s gross estate upon his or her death (section 2044). See instructions for line 4 of Schedule A. If your spouse disposes (by gift or otherwise) of all or part of the qualifying life income interest, he or she will be considered to have made a transfer of the entire property that is subject to the gift tax. See Transfer of Certain Life Estates Received From Spouse in the instructions.

12 Election Out of QTIP Treatment of Annuities ` Check here if you elect under section 2523(f)(6) not to treat as qualified terminable interest property any joint and survivor annuities that are reported on Schedule A and would otherwise be treated as qualified terminable interest property under section 2523(f). See instructions. Enter the item numbers from Schedule A for the annuities for which you are making this election a

SCHEDULE B Gifts From Prior Periods If you answered “Yes,” on line 11a of page 1, Part 1, see the instructions for completing Schedule B. If you answered “No,” skip to the Tax Computation on page 1 (or Schedules C or D, if applicable). Complete Schedule A before beginning Schedule B. See instructions for recalculation of the column C amounts. Attach calculations.

C D A Amount of applicable B Amount of specific E Calendar year or credit (unified credit) Internal Revenue office exemption for prior Amount of calendar quarter against gift tax where prior return was filed periods ending before taxable gifts (see instructions) for periods after January 1, 1977 December 31, 1976

1 Totals for prior periods ...... 1

2 Amount, if any, by which total specific exemption, line 1, column D is more than $30,000 ...... 2 3 Total amount of taxable gifts for prior periods. Add amount on line 1, column E and amount, if any, on line 2. Enter here and on page 1, Part 2—Tax Computation, line 2 ...... 3 (If more space is needed, attach additional statements.) Form 709 (2015) Form 709 (2015) Page 4 SCHEDULE C Deceased Spousal Unused Exclusion (DSUE) Amount Provide the following information to determine the DSUE amount and applicable credit received from prior spouses. Complete Schedule A before beginning Schedule C. A B C D E F Name of Deceased Spouse (dates of death after Date of Death Portability Election If “Yes,” DSUE DSUE Amount Applied Date of Gift(s) Made? Amount Received by Donor to Lifetime (enter as mm/dd/yy December 31, 2010 only) from Spouse Gifts (list current and for Part 1 and as prior gifts) yyyy for Part 2) Yes No Part 1—DSUE RECEIVED FROM LAST DECEASED SPOUSE

Part 2—DSUE RECEIVED FROM PREDECEASED SPOUSE(S)

TOTAL (for all DSUE amounts applied from column E for Part 1 and Part 2) 1 Donor’s basic exclusion amount (see instructions) ...... 1 2 Total from column E, Parts 1 and 2 ...... 2 3 Add lines 1 and 2 ...... 3 4 Applicable credit on amount in line 3 (See Table for Computing Gift Tax in the instructions). Enter here and on line 7, Part 2—Tax Computation ...... 4 SCHEDULE D Computation of Generation-Skipping Transfer Tax Note. Inter vivos direct skips that are completely excluded by the GST exemption must still be fully reported (including value and exemptions claimed) on Schedule D. Part 1—Generation-Skipping Transfers A B C D Item No. Value (from Schedule A, Nontaxable Net Transfer (subtract (from Schedule A, Part 2, col. H) Portion of Transfer col. C from col. B) Part 2, col. A) 1

Gifts made by spouse (for gift splitting only)

(If more space is needed, attach additional statements.) Form 709 (2015) Form 709 (2015) Page 5 Part 2—GST Exemption Reconciliation (Section 2631) and Section 2652(a)(3) Election Check here a if you are making a section 2652(a)(3) (special QTIP) election (see instructions) Enter the item numbers from Schedule A of the gifts for which you are making this election a 1 Maximum allowable exemption (see instructions) ...... 1

2 Total exemption used for periods before filing this return ...... 2

3 Exemption available for this return. Subtract line 2 from line 1 ...... 3

4 Exemption claimed on this return from Part 3, column C total, below ...... 4

5 Automatic allocation of exemption to transfers reported on Schedule A, Part 3. To opt out of the automatic allocation rules, you must attach an “Election Out” statement. (see instructions) ...... 5

6 Exemption allocated to transfers not shown on line 4 or 5, above. You must attach a “Notice of Allocation.” (see instructions) ...... 6

7 Add lines 4, 5, and 6 ...... 7

8 Exemption available for future transfers. Subtract line 7 from line 3 ...... 8 Part 3—Tax Computation A B E G H C D F Item No. Net Transfer Inclusion Ratio Applicable Rate Generation-Skipping GST Exemption Divide col. C Maximum Estate (from Schedule (from Schedule D, (Subtract col. D (multiply col. E Transfer Tax Allocated by col. B Tax Rate D, Part 1) Part 1, col. D) from 1.000) by col. F) (multiply col. B by col. G) 1 40% (.40) 40% (.40) 40% (.40) 40% (.40) 40% (.40) 40% (.40) Gifts made by spouse (for gift splitting only) 40% (.40) 40% (.40) 40% (.40) 40% (.40) 40% (.40) 40% (.40) Total exemption claimed. Enter here and on Part 2, line 4, above. Total generation-skipping transfer tax. Enter here; on page 3, May not exceed Part 2, line 3, Schedule A, Part 4, line 10; and on page 1, Part 2—Tax above ...... Computation, line 16 ...... (If more space is needed, attach additional statements.) Form 709 (2015)

Department of Taxation and Finance ET-706 )RURI¿FHXVHRQO\ New York State Estate Tax Return (4/15) For an estate of an individual who died on or after April 1, 2015, and on or before March 31, 2016 Amended return Federal audit changes Decedent’s last name First name Middle initial Social security number (SSN)

If copy of death Address of decedent at time of death QXPEHUDQGVWUHHW Date of death FHUWL¿FDWHLV attached, mark an X in the box City State ZIP code County of residence

If the decedent was a nonresident of New York State (NYS) on the date of death, mark an X in the box and attach a completed Form ET-141, 1HZ

In care of ¿UP¶VQDPH If POA is If more than one executor, mark E-mail address of executor attached, mark an X an X in the box VHHLQVWU in the box Address of attorney or authorized representative Address of executor

City State ZIP code City State ZIP code

PTIN or SSN of attorney or authorized rep. Telephone number Social security number of executor Telephone number ( ) ( ) If the decedent possessed a cause of action or was a plaintiff in any litigation at the time of death, mark an X in the box and complete Schedule E VHH)RUP(7,Instructions for Form ET-706 ...... Installment payments of tax for closely held business – Do you elect to pay the tax in installments as described in IRC section 6166 (NYS Tax Law section 997)? If

1 Taxable estate for New York State IURP6FKHGXOH$3DUWOLQHRU3DUWOLQH ...... 1. 2 New York State estate tax IURPWD[WDEOHRQSDJH ...... 2. 3 Applicable credit VHHLQVWUXFWLRQV ...... 3. 4 Tax after credit VXEWUDFWOLQHIURPOLQH ...... 4. 5 Prior tax payments to New York State, if any DWWDFKD6FKHGXOHRIGDWHVDQGDPRXQWV ...... 5. 6 If line 5 is less than line 4, subtract line 5 from line 4. This is the amount you owe ...... 6. computation Tax 7 If line 5 is greater than line 4, subtract line 4 from line 5. This is the amount to be refunded to you 7. If an attorney or authorized representative is listed above, he or she must complete the following declaration. I declare that I have agreed to represent the executor(s) for the above estate, that I am authorized to receive tax information regarding the estate, and I am PDUNDQXLQDOOWKDWDSSO\ DQDWWRUQH\ DFHUWL¿HGSXEOLFDFFRXQWDQW DQHQUROOHGDJHQW a public accountant enrolled with the NYS Education Department Signature of attorney or authorized representative Date E-mail address of attorney

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Furthermore, I/we, as executor(s) for this estate, authorize the person, if any, named as my/our representative on this return WRUHFHLYHFRQ¿GHQWLDOWD[LQIRUPDWLRQUHJDUGLQJWKLVHVWDWH

Signature of executor Date Signature of co-executor Date

Print name of preparer other than executor Signature of preparer other than executor Preparer’s PTIN or SSN Preparer’s NYTPRIN

Address of preparer City State ZIP code Date E-mail address of preparer Page 2 of 6 ET-706 (4/15)

Schedule A – Computation of New York State taxable estate Part 1 – Resident 8 Amount from federal Form 706, page 3, part 5, line 13 ...... 8. 9 Property with a location outside New York State IURP6FKHGXOH% ...... 9. 10 Subtotal VXEWUDFWOLQHIURPOLQH ...... 10. 11 Amount determined under section 957 UHODWLQJWR3RZHUVRI$SSRLQWPHQWSULRUWR ...... 11. 12 Taxable gifts IURP6FKHGXOH' ...... 12. 13 Total gross estate for New York State DGGOLQHVDQG ...... 13. 14 Total allowable federal deductions IURPIHGHUDO)RUPSDJH SDUWOLQH ...... 14. 15 Federal deductions not allowed for New York State purposes IURP 6FKHGXOH(OLQH ...... 15. 16 Allowable federal deductions for NYS purposes VXEWUDFWOLQHIURPOLQH ...... 16. 17 Taxable estate for New York State VXEWUDFWOLQHIURP ...... 17.

Part 2 – Nonresident 18 Amount from federal Form 706, page 3, part 5, line 13; or Form 706-NA, page 2, Schedule B, line 1 18. 19 Property with a location outside New York State IURP6FKHGXOH% ... 19. 20 Intangible property included in line 18 amount ...... 20. 21 Non-taxable estate for New York purposes DGGOLQHVDQG ...... 21. 22 Amount of federal gross estate subject to New York State estate taxes VXEWUDFWOLQHIURPOLQH .. 22. 23 Amount determined under section 957 UHODWLQJWR3RZHUVRI$SSRLQWPHQWSULRUWR ...... 23. 24 Taxable gifts IURP6FKHGXOH' ...... 24. 25 Total gross estate for New York State DGGOLQHVDQG ...... 25. 26 Total allowable federal deductions IURPIHGHUDO)RUPSDJH SDUWOLQHRU)RUP1$SDJH6FKHGXOH%OLQH ...... 26. 27 Federal deductions not allowed for New York State purposes IURP 6FKHGXOH(OLQH) ...... 27. 28 Allowable federal deductions for NYS purposes VXEWUDFWOLQHIURPOLQH ...... 28. 29 Tentative New York State taxable estate VXEWUDFWOLQHIURPOLQH ...... 29. 30 Works of art on loan in New York State ...... 30. 31 Taxable estate for New York State VXEWUDFWOLQHIURPOLQH ...... 31.

Schedule B – Property located outside New York State List below each item of real and tangible personal property located outside New York State that is included in the federal gross estate. Include the item number, the schedule of federal Form 706 or 706-NA on which it was reported, and the reported value of the property. 6XEPLWDGGLWLRQDOVKHHWVLIQHFHVVDU\VHHLQVWUXFWLRQV Item number Description Value

Total amounts from all additional sheets ...... Total value of property located outside New York State LQFOXGHWRWDOVIURPDOODGGLWLRQDOVKHHWV . Enter here and on Schedule A, line 9 or 19...... ET-706 (4/15) Page 3 of 6

Schedule C – New York property of a nonresident individual

List below each item of real and tangible personal property located within New York State. Include the item number, the schedule of federal Form 706 or 706-NA on which it was reported, and the reported value of the property. 6XEPLWDGGLWLRQDOVKHHWVLIQHFHVVDU\ VHHLQVWUXFWLRQV

Item number Description Value

Total amounts from all additional sheets ......

Total value of New York property of nonresident individual LQFOXGHWRWDOVIURPDOODGGLWLRQDOVKHHWV ......

Schedule D – Taxable gifts List below all taxable gifts under section 2503 of the Internal Revenue Code made during the three-year period ending on the individual’s date of death that were not otherwise included in the federal gross estate. Taxable gifts would not include any gift of real or tangible personal property located outside New York State, any gift made when the individual was not a resident of New York State, or any gift made prior to April 1, 2014. 6XEPLWDGGLWLRQDOVKHHWVLIQHFHVVDU\VHHLQVWUXFWLRQV

Date gift made Description of property gifted LQFOXGLQJORFDWLRQ Taxable amount of gift

Total amounts from all additional sheets ......

Total taxable amount of gifts LQFOXGHWRWDOVIURPDOODGGLWLRQDOVKHHWV . Enter here and on Schedule A, line 12 or 24...... Page 4 of 6 ET-706 (4/15)

Schedule E – Computation of allowable New York State deductions Part 1 – Resident

Description of A B C D allowable federal Total on federal return Deductions directly Deductions directly Deductions not directly deductions related to property related to property related to property inside inside New York State outside or outside New York State or intangible personal New York State* or to intangible personal property property (deductions to be allocated) 32 Schedule J – funeral expenses and expenses incurred in administering property subject to claims 33 Schedule K – debts of the decedent 34 Schedule K – mortgages and liens 35 Add lines 32 through 34 36 Allowable amount of deductions from line 35 above 37 Schedule L – net losses during administration 38 Schedule L – expenses incurred in administering property not subject to claims 39 Schedule M – bequests, etc., to surviving spouse 40 Schedule O – charitable, public, and similar gifts and bequests 41 Total DGGOLQHVWKURXJK

* If you have an amount entered in column C, attach a statement indicating the item number of the property listed on Schedule B that the deduction is directly related to if the location of the deduction is not clearly labeled on federal Schedules J through O.

42 Property outside New York State IURP6FKHGXOH$3DUWOLQH ...... 42. 43 Federal gross estate IURP6FKHGXOH$3DUWOLQH ...... 43. 44 Allocation percentage GLYLGHOLQHE\OLQH ...... 44. 45 Deductions not directly related to property inside or outside New York State or intangible personal property IURPFROXPQ'OLQH ...... 45. 46 Deductions allocated to property outside New York State PXOWLSO\OLQHDQGOLQH ...... 46. 47 Deductions directly related to property outside New York State IURPFROXPQ&OLQH ...... 47. 48 Federal deductions not allowed for New York State purposes DGGOLQHVDQG DOVRHQWHURQ 6FKHGXOH$3DUWOLQH ...... 48. ET-706 (4/15) Page 5 of 6

Schedule E – Computation of allowable New York State deductions FRQWLQXHG Part 2 – Nonresident

Description of A B C D allowable federal Total on federal return Deductions directly Deductions directly Deductions not directly deductions related to property inside related to property related to property inside New York State outside New York State or outside New York State or intangible personal or to intangible personal property* property (deductions to be allocated) 49 Schedule J – funeral expenses and expenses incurred in administering property subject to claims 50 Schedule K – debts of the decedent 51 Schedule K – mortgages and liens 52 Add lines 49 through 51 53 Allowable amount of deductions from line 52 above 54 Schedule L – net losses during administration 55 Schedule L – expenses incurred in administering property not subject to claims 56 Schedule M – bequests, etc., to surviving spouse 57 Schedule O – charitable, public, and similar gifts and bequests 58 Total DGGOLQHVWKURXJK

59 Property outside New York State and intangible personal property IURP6FKHGXOH$3DUWOLQH .... 59. 60 Federal gross estate IURP6FKHGXOH$3DUWOLQH ...... 60. 61 Allocation percentage GLYLGHOLQHE\OLQH ...... 61. 62 Deductions not directly related to property inside or outside New York State or intangible personal property IURPFROXPQ'OLQH ...... 62. 63 Deductions allocated to property outside New York State and intangible personal property PXOWLSO\ OLQHDQGOLQH ...... 63. 64 Deductions directly related to property outside New York State and intangible personal property IURPFROXPQ&OLQH ...... 64. 65 Federal deductions not allowed for New York State purposes DGGOLQHVDQG DOVRHQWHURQ 6FKHGXOH$3DUWOLQH ...... 65. Page 6 of 6 ET-706 (4/15)

Schedule F – Description of litigation or cause of action In the area provided below, describe any litigation in which the decedent was a plaintiff or litigation that is pending or contemplated on behalf of the decedent. Include the actual or estimated values of such litigation VHHLitigation informationLQLQVWUXFWLRQV .

Tax table If the New York taxable estate is:

over but not over The tax is: $ 0 $ 500,000 3.06% of taxable estate 500,000 1,000,000 $ 15,300 plus 5.0% of the excess over $ 500,000 1,000,000 1,500,000 40,300 plus 5.5% " " " " 1,000,000 1,500,000 2,100,000 67,800 plus 6.5% " " " " 1,500,000 2,100,000 2,600,000 106,800 plus 8.0% " " " " 2,100,000 2,600,000 3,100,000 146,800 plus 8.8% " " " " 2,600,000 3,100,000 3,600,000 190,800 plus 9.6% " " " " 3,100,000 3,600,000 4,100,000 238,800 plus 10.4% " " " " 3,600,000 4,100,000 5,100,000 290,800 plus 11.2% " " " " 4,100,000 5,100,000 6,100,000 402,800 plus 12.0% " " " " 5,100,000 6,100,000 7,100,000 522,800 plus 12.8% " " " " 6,100,000 7,100,000 8,100,000 650,800 plus 13.6% " " " " 7,100,000 8,100,000 9,100,000 786,800 plus 14.4% " " " " 8,100,000 9,100,000 10,100,000 930,800 plus 15.2% " " " " 9,100,000 10,100,000 ...... 1,082,800 plus 16.0% " " " " 10,100,000

This return PXVWEH¿OHGZLWKLQQLQHPRQWKVDIWHUWKHGDWHRIGHDWKXQOHVVDQH[WHQVLRQRIWLPHWR¿OHWKHUHWXUQKDVEHHQJUDQWHG Mail your return and payment (if any) to: NYS ESTATE TAX PROCESSING CENTER PO BOX 15167 ALBANY NY 12212-5167 If you use a private delivery service, see 3ULYDWHGHOLYHU\VHUYLFHV in the instructions. Reminders: Sign the front page of this return. If there is an amount due on line 6, make check payable in U.S. funds to Commissioner of Taxation and Finance. Attach a completed copy of the federal estate tax return along with any accompanying schedules and supplementary information. New York State Department of Taxation and Finance ET-141 New York State Estate Tax Domicile Affidavit (1/15) For estates of decedents dying after May 25, 1990 Complete Form ET-141 if it is claimed that the decedent was not domiciled in New York State at the time of death. The fiduciary (executor or administrator), the surviving spouse, or a member of the decedent’s immediate family who can provide all the information requested below should complete this affidavit.

Answer all questions completely. Submit this form with Form ET-30; ET-85; ET-90 for dates of death before February 1, 2000; ET-130; ET-133; or ET-706 for dates of death on or after February 1, 2000; as applicable. Decedent’s last name First Middle initial Social security number

Address of decedent at time of death (number and street) Date of death

City, village or post ofﬁce County State ZIP code Country of residence

Age of death Date of birth Place of birth

1 If born outside the United States, was the decedent a naturalized citizen of the United States? If Yes, enter (below) the name and address of the court where the decedent was naturalized. Yes No Name and address of court where naturalized

2 Did decedent ever live in New York State? Yes No If Yes, list periods. 3 Did decedent ever own, individually or jointly, any interest in real estate located in New York State? Yes No If Yes, list addresses and periods below (submit additional sheets if necessary). Periods of time - from/to Addresses of property

4 Did decedent lease a safe deposit box located in New York State at the time of death? Yes No If Yes, complete box below. Also, if Yes, has it been inventoried? Yes No If Yes, submit a copy of inventory. Name and address of bank where box is located

5 Provide the following information regarding the residences of the decedent during the last ﬁve years preceding death (submit additional sheets if necessary).

Period of time Residence Period of time Residence Address owned - rented Address owned - rented from - to other - explain from - to other - explain

6 For the five years prior to death, list (1) the Internal Revenue Service Centers and (2) the states or other municipalities where the decedent filed income tax returns (if no income tax returns were filed, enter none). Year Internal Revenue Service Center State, county, or municipality

Privacy notification New York State Law requires all government agencies that maintain a system of records to provide notification of the legal authority for any request, the principal purpose(s) for which the information is to be collected, and where it will be maintained. To view this information, visit our Web site, or, if you do not have Internet access, call and request Publication 54, Privacy Notification. See Need help? for the Web address and telephone number. ET-141 (1/15) (back)

7 List the states where the decedent was registered to vote during the last ﬁve years preceding death (list latest year ﬁrst). Years State From To

Date of Death

If decedent did not vote in those ﬁve years, when did he or she last vote? Where?

8 List employment or business activities (if any) engaged in by the decedent during the ﬁve years preceding the date of death. In New York State Outside New York State Period of time Period of time from - to Nature of employment or business activities from - to Nature of employment or business activities

If Yes, list courts, dates, 9 Was decedent a party to any legal proceedings in New York State during the last ﬁve years? Yes No and types of action.

10 Did decedent have a license to operate a business, profession, motor vehicle, airplane, or boat? Yes No If Yes, list below. License number Type of license Date of issuance Name and location of issuing ofﬁce

11 Did decedent execute any trust indentures, deeds, mortgages, or any other documents describing his or her residence during the last ﬁve years preceding death? Yes No If Yes, submit a copy. 12 Was the decedent a member of any church, club, or organization? Yes No If Yes, give name, address, and other details. (Submit additional sheets if necessary.)

13 What other information do you wish to submit in support of the contention that the decedent was not domiciled in New York State at the time of death? (Submit additional sheets if necessary.)

Applicant’s last name First name Middle initial Relationship to decedent

Address (number and street) Connection with estate

City, village, or post ofﬁce State ZIP code Country of residence

The undersigned states that this afﬁdavit is made to induce the Commissioner of the Department of Taxation and Finance of the State of New York to determine domicile, and that the answers herein contained to the foregoing questions are each and every one of them true in every particular.

Signature of Notary Public, Commissioner of Deeds or Authorized New York State Signature of applicant Department of Taxation and Finance employee (no seal required)

Sworn before me this day of 20 Signature THE NEW YORK STATE ESTATE TAX ON ESTATES

OF NON-RESIDENT DECEDENTS -- EVOLVING FROM

ONFISCATORY AND UNCONSTITUTIONAL TO

ALMOST REASONABLE AND RATIONAL

Edward A. McCoyd, Esq.

McCoyd, Parkas & Ronan LLP Garden City

and

Susan M. Bacigalupo, Esq.

McCoyd, Parkas & Ronan LLP Garden City

THE NEW YORK STATE ESTATE TAX ON ESTATES OF NON-RESIDENT DECEDENTS -- EVOLVING FROM CONFISCATORY AND UNCONSTITUTIONAL TO ALMOST REASONABLE AND RATIONAL

I. NEW YORK STATE ADOPTS (AND QUICKLY ABANDONS) THE “SOP TAX” l. New York Joins the Crowd –-

In 1997, after years of taxing estates at rates ranging from 2% to as high as 21%, New York adopted a

so-called “SOP Tax” system, in part to stem the flow of retired New Yorkers to states such as Florida

where more favorable temperatures and tax systems could be found. The 1997 legislation provided that,

commencing with decedents dying on or after February 1, 2000, New York would impose estate taxes no

higher than the amount available as a credit against a decedent’s federal estate tax, thus reducing its

maximum estate tax rate to 16% and eliminating taxes entirely on smaller estates.

2. New York “Walks” after a Federal “Double Cross” --

When the federal government decided in 2001 to exempt increasingly larger estates from federal estate

taxation, but to reduce the credit it would allow against the federal estate tax for estate taxes paid to the

states, New York, by then facing a new budget crunch, decided that it had gone far enough in reducing

its estate tax and refused to exempt estates larger than one million dollars from the tax. It also decided

to assess estates of its resident decedents with taxable assets in excess of $1 million with the full amount

which had previously been allowed as a credit by the federal government for state death taxes paid by

those estates. This “decoupling” began to take effect with the estates of decedents dying on or after

January 1, 2002.

1 II. NEW YORK AND THE NON-RESIDENT DECEDENT

1. You Don’t Have to Be a New Yorker to Pay Taxes --

Under the 1997 New York legislation, the tax on non-resident decedents’ estates was also to be

determined with reference to the available state death tax credit. Here, however, since the tax was to be

assessed only with respect to real and tangible personal property having a situs in the State of New York,

the tax would presumptively be equal to the pro rata share of the non-resident decedent’s total gross

estate that was represented by the decedent’s New York realty and tangible personalty.

2. Tax Simplification, New York Style --

To accomplish this, Section 960 of the New York Tax Law took a rather roundabout approach to

calculating the tax on the estate of a non-resident decedent. It provided that the tax would be the same as

the tax assessed on a resident decedent’s estate (determined under Section 952 of the Tax Law by

subtracting the portion of the available estate death tax credit attributable to non-New York realty and

tangible personalty from the total available credit), except that the decedent’s intangible personalty

would in effect be treated as non-New York realty or tangible personalty in making this calculation.

Then, for some reason, an alternate method of determining the New York estate tax was incorporated

into Section 952 (and, by reference, into Section 960). The alternate method was to subtract from the

maximum allowable state death tax credit only so much of the credit as was owed to another state by the

decedent’s estate.

3. The “Stealth” Provision --

In providing these alternate methods of calculating the New York estate tax, Section 952 provided that

the tax would be equal to the greater of the two alternatives. Therefore, New York would collect at least

its proportionate share of the available state death tax credit from its resident decedents, and, if another

state did not collect its proportionate share of the credit, New York would take that as well. The

2 constitutional basis for, in effect, assessing taxes on property over which New York had no jurisdiction

was questionable, but as a practical matter (at least judging by the lack of publicity about such

problems)1 , there seem to have been few problems generated by the language of Section 952 with respect

to the estates of resident decedents, presumably because the Internal Revenue Service was not

questioning what appeared to be unremarkable claims to state death tax credits on the federal estate tax

returns filed by these estates.

III. BUT WHAT’S THIS? GROTESQUELY EXCESSIVE ASSESSMENTS OF TAX ON NON-RESIDENT ESTATES PUZZLE THE PROFESSION

1. If You’re Not Using that Credit, We’ll Take It. --

In 2003, after the new provisions had been in effect for a while, a curious situation began to develop in

some non-resident estates. Articles started showing up in various publications, commenting on what

appeared to be an emerging nightmare for the estates of non-residents. These estates were finding

themselves in situations where the Department of Taxation and Finance was demanding New York

estate taxes that in some cases exceeded the value of the New York assets but where the eligibility of

these taxes for the state death tax credit on the estate’s federal return was at best questionable. Some of

these articles suggested planning strategies for non-resident clients with New York assets. One suggested

litigation tactics for estates of decedents already facing such assessments. Another pointed to a line of

United States Supreme Court decisions indicating that New York’s new method of assessing tax on non-

resident estates was unconstitutional, and predicted that the Department of Taxation and Finance would

eventually surrender to estates challenging these assessments:

(a) In an article entitled “The Application of the New York Estate Tax to Non-residents of New

York State”, by Lee A. Snow, that appeared in the Summer 2003 issue of the New York State

Bar Association’s Trusts and Estates Law Section Newsletter, an example was given of an estate

3 of an Arizona resident in which the New York State estate tax would equal 31% of the value of

the decedent’s New York assets – - a percentage far in excess of the maximum state death tax

credit (16%). A second example in the same article suggested that a New York tax of 150% of

the value of the New York assets would be possible in such an estate. The author mentioned that

in discussions with estate tax attorneys in Albany, he was advised that the Department of

Taxation and Finance felt bound to a literal application of the language of Section 960 of the Tax

Law (i.e., we’ll take it [the credit] if no one else does), notwithstanding the apparently unfair (or

perhaps unconstitutional) assessments it could generate.

(b) In another article in the Fall 2003 issue of the same publication, Jocelyn D. Margolin noted that

the situation would get worse after 2001, when the Federal government would stop allowing a

full state death tax credit but New York would still collect tax equal to the credit even if other

states did not. She suggested various methods for non-residents to turn their New York realty

and tangible personalty into an intangible asset not subject to New York tax (e.g., transfer to an

LLC), or even getting rid of the property altogether, but these of course worked only if the

decedent had not already become a decedent.

Non-Resident Estate Tax: A Tax That Can Be Less Than It Seems To Be”, Mal L. Barasch and

Kata B. Schissler wrote of a “recent unreported case” in which State Tax had attempted to assess

over $400,000 in New York estate taxes on approximately $50,000 of New York property, but

later relented and assessed a tax of about $3,000 against the non-resident estate. The

Barasch/Schissler article analyzed the situation that led to the reversal of the State’s position,

describing several United States Supreme Court holdings that a state has no power to tax the

transfer of a non-resident decedent’s property over which it has no jurisdiction. These decisions

4 also prohibited states from assessing indirectly taxes that they are constitutionally prohibited

from assessing directly. The article also mentioned Revenue Ruling 56-230 (1956-1 CB 660) in

which the Internal Revenue Service determined that any estate taxes assessed by a state in

violation of these constitutional prohibitions would not qualify for the State death tax credit in

determining the estate’s federal estate tax liability.

2. What do New York, Alabama and Mississippi Have in Common? --

In the meantime, the New York State situation began to attract national attention:

(a) In the Summer 2003 issue of “ACTEC Notes” (The quarterly publication of the American

College of Trust and Estate Counsel), in referring to “an almost comical situation” developing in

Alabama and Mississippi, whose current statutes would take a decedent’s entire estate for the

state’s estate tax if their laws were not changed by 2005, the authors of an article on the phase out

of the state death tax credit under EGGTRA mentioned that “other states, such as New York,

could impose a tax larger than the value of property in New York on non-residents because of the

formulas used to apportion tax between the state of residence and New York.”2

(b) Course materials for a nationwide American Bankers Association teleconference presented by the

Illinois office of Schiff Haradin LLP on February 5, 2004 on the ramifications of the state death

tax credit phaseout also made reference to the problem, but indicated that the New York State

Department of Taxation and Finance had decided to relent and limit its assessments on non-

residents’ estates to the proportionate share of the state death tax credit attributable to the New

York realty and tangible personalty (see p.5 of the course materials). However, the source of this

information later proved to be unreliable.

3. State Tax Passes the Buck --

5 Although such a change of position was clearly contemplated, and perhaps tentatively decided upon in

the Department of Taxation and Finance, the staff members eventually decided that it was up to the

legislature, and not to them, to make such a decision.

IV. EXPATRIATES BEWARE!

1. The Department of Taxation and Finance Finds its “Dream” Non-Resident Estate --

In the estates of U.S. citizens domiciled abroad, it is often the case that little or no estate tax is imposed

by any of the 50 States, thus leading to the possibility that New York would interpret its statute to permit

it to assess taxes equal to all or virtually all of the available state death tax credit should it find any realty

or tangible personalty owned by the decedent within its borders.

2. Closing the Budget Deficit in One Easy Lesson --

In one case, New York assessed $93,468.97 in New York estate tax on $855.00 of New York tangible

personalty owned by a decedent domiciled in China at the time of his death, an effective tax rate of

10,932%! This assessment was protested, and the protest was “under review” in Albany for over two

years.

V. THE GOVERNOR STEPS IN

1. Good News and Bad News --

In his 2004 Budget Bill, Governor Pataki proposed an amendment to Sections 952 and 960 of the Tax

Law3 that would solve the problem by eliminating the language of Section 952 that allowed New York to

collect any portion of the available State death tax credit that was not being claimed by another state.

Unfortunately, perhaps as a result of confusion caused by the decoupling of New York State’s estate tax

system and the federal system after 2001 due to the passage of EGGTRA, the governor’s bill would

apply only to estates of decedents dying on or after January 1, 2002, thus leaving the estates of

6 decedent’s dying between February 1, 2000 (the initial effective date of New York’s SOP Tax) and

December 31, 2001 “out in the cold”.

2. Senator Hannon to the Rescue --

Long Island’s Senator Kemp Hannon, having learned of the effective date problem, then introduced his

own Bill (Senate 7048) on April 19, 2004. This Bill provided for the same modifications to Sections

952 and 960 as the Governor’s Bill, but made them effective with respect to the estates of decedents

dying on and after February 1, 2000, thus providing relief to all affected estates.

VI. RESOLUTION (OF SORTS)

On August 20, 2004, Governor Pataki signed into law the Budget Bill containing amendments to

Sections 952 and 960 of the Tax Law. These changes, which were contained in Part I, Sections 3, 4 and

5 of Chapter 60 of laws of 2004, corrected the problem, but only for the estates of decedents dying on or

after January 1, 2002. The estates of both resident and non-resident decedents who died between

February 1, 2000 and December 31, 2001 were still potentially subject to unconstitutional estate taxation

of property over which New York State had no jurisdiction.

The failure of the legislature to pass the Hannon bill, which would have corrected the problem for all

affected estates, was apparently due to the concern of the Department of Taxation and Finance that it

would have to make significant refunds to the estates of decedents who had died within that 23-month

period. However, if the estate tax proceedings remained open in those estates, the Department indicated

that it would treat the estates as if they were covered by the new legislation, and withdraw its claims for

taxes assessed under the old versions of Sections 952 and 960.4

The logic behind the refusal of the state to change its position with respect to the February 1, 2000

through December 31, 2001 estates whose tax proceedings were already closed was that tax payments by

those estates had presumably been fully allowed as a credit against the estates’ federal estate tax liability,

7 the federal phaseout of the State Death Tax Credit not having commenced until January 1, 2002.

Although this logic seems to be the equivalent of “Why change something we’ve already gotten away

with?”, it might be more gently described as a simple “No harm, no foul” determination, or, perhaps

more appropriately, “We need the money more than Washington does.”

VII. TRANSFORMING TAXABLE ASSETS INTO NONTAXABLE PROPERTY

1. The Intangible or Tangible Mystery – Now You See It, Now You Don’t –

Once the tax department conceded that it was inappropriate to tax assets not subject to its jurisdiction, its

focus, and that of taxpayers, shifted to what was in fact subject to it.

A non-resident decedent is liable for New York estate tax only if the decedent owned New York real

estate or tangible personal property located in New York. No New York estate tax is imposed on

intangible assets held by a non-resident decedent.5 Whether a non-resident decedent’s interest in an

entity holding real estate, such as a trust, limited liability company, partnership or corporation, will be

considered an intangible, and thus excludable from the decedent’s New York gross estate, depends upon

whether the entity is treated for income tax purposes as an entity separate from the taxpayer. Another

factor given great weight by the Tax Department is whether the entity has a business purpose.

The Department of New York State Taxation and Finance has published several Advisory Opinions

providing guidance on the estate tax treatment of New York real estate held by an entity owned in whole

or in part by a non-resident decedent. Although these Advisory Opinions are binding only with respect

to the taxpayers to whom they are issued, the reasoning gives an indication of how similar situations

might be treated and provides a road map for future estate tax planning. These Opinions, which are

reviewed below, can be found on the New York State Department of Taxation and Finance website.6

8 2. Ownership by a Trust --

Transferring title of New York realty to a revocable trust will not be sufficient to avoid New York estate

tax on a non-domiciliary decedent's estate, since a revocable trust is not treated as an entity separate from

the taxpayer for income tax purposes. For the trust’s interest in the realty to be treated for estate tax

purposes as an intangible asset, the revocable trust must hold the real estate in an entity which is treated

for income tax purposes as an entity separate from the taxpayer. For example, the Tax Department

treated as an intangible asset a revocable trust created by a non-resident decedent which held a

membership interest in a multi-member LLC, that was taxed for income tax purposes as a partnership.7

Title to the New York real estate was held in the name of the LLC. Similarly, a revocable trust created

by a non-resident decedent funded with a 50% interest in a partnership that owned several cooperative

apartments in New York was treated by the New York State Tax Department as intangible property and

therefore not subject to New York estate tax.8

In the case of a non-domiciliary who had created a qualified personal residence trust (QPRT) funded

with New York real estate, and who had failed to survive the term, resulting in inclusion of the New

York realty in her gross estate, the Tax Department advised that the realty would be subject to New York

estate tax, on the grounds that the real estate transfer to the trust was not complete until the grantor’s

death, due to the grantor’s retained interest in the trust. The Tax Department noted that if the trust had

held intangible property instead of real estate the result would have been different, since intangible assets

held by a non-domiciliary are not taxed in New York.9

In the reverse situation, where a New York domiciliary had created a revocable trust that was funded

with out of state realty, the Tax Department did not consider the interest in the trust to be an intangible

asset, but rather treated the trust as real property and subtracted the value of the real estate from the New

York gross estate.

9 In this same opinion, the Tax Department also considered two other possible scenarios concerning

resident decedents with irrevocable trusts funded with out of state real estate. One involved a resident

decedent who had retained a general power of appointment over an irrevocable trust he had created

which was invested in out of state real estate. In the other, an irrevocable trust created by a third party

over which the resident decedent held a general power of appointment had invested in out of state real

property. In both cases, the Tax Department determined that the trust realty should be treated as out of

state real property not subject to New York estate tax and not treated as intangible assets.10

3. Ownership by Single-Member LLC or S Corporation --

Transferring title to real estate into the name of a single-member LLC which is 100% owned by a non-

resident of New York will not be sufficient to avoid New York estate tax, since a single-member LLC is

taxed as a disregarded entity for income tax purposes, unless an election is made to have the LLC taxed

as an association and therefore treated as a corporation.11 A non-domiciliary could avoid New York

estate tax by having New York real estate held by a multi-member LLC, a partnership or by a

corporation, provided that the entity has a business purpose and is not disregarded for tax purposes.12 Of

course, the non-resident would have to be comfortable with giving up part of his or her ownership, such

as by gifting some of the interest to a family member, in order to avoid holding the entire ownership

interest.

VIII. EVOLVING FURTHER INTO FAIRNESS FOR NON-RESIDENTS

1. All Is Forgiven: New York Reconnects –

The dawning of 2014 was a watershed moment in the world of New York estate tax because it ushered

in drastic revisions to the New York estate tax law, many changes benefiting both residents and non-

residents. Among the most significant amendments passed by Chapter 59 of the Laws of 2014 was the

increase in the amount that could pass tax free at death – the basic exclusion amount.

10 The New York exclusion amount had been frozen at $1 million for over twelve years, since 2002, while

the federal exclusion amount was gradually increasing. The new legislation adopted a gradual phase-in

of increases to the New York estate tax exclusion amount beginning on April 1, 2014, so that by the year

2019 the New York exclusion amount will equal the federal exclusion amount. Both resident and non-

resident estates became entitled to a basic exclusion amount of $2,062,500 for dates of death on and

after April 1, 2014; increasing to $3,125,000 on April 1, 2015, $4,187,500 on April 1, 2016 and

$5,250,000 on April 1, 2017. After January 1, 2019, the basic exclusion amount for New York estate tax

will be equal to the federal basic exclusion amount and will be indexed for inflation in the same manner

as the federal amount. Although climbing up these steps was something of a slippery slope, given the

“cliff” awaiting those who stepped over the edges on the way up, all would be well for those who made

it to the top in 2019. More about that later. A summary of all the amendments made to the New York

estate tax effective April 1, 2014 are set forth in a concise manner in a New York State Department of

Taxation and Finance Technical Memorandum.13

2. Something for Everyone: Major Reform in Calculation of the Estate Tax on Non-Resident Estates –

Chapter 59 of the Laws of 2014 also amended the definition of the New York gross estate and the New

York taxable estate for both resident and non-resident estates, and revised the method of calculating the

estate tax on a non-resident estate. This ended a long-standing inequity in the taxation of non-residents.

Under prior law, the New York estate tax on a non-resident estate was calculated as follows: The New

York estate tax was first computed on the entire gross estate, including assets outside of New York.

Then this tax was multiplied by a fraction, the numerator equal to the assets not taxable by New York

and the denominator being the entire gross estate, and the result was then subtracted from the estate tax

on the entire gross estate. The difference was the estate tax owed by the non-resident estate.

11 This calculation resulted in the non-resident estate picking up the fraction of what would have been a

New York resident’s estate tax attributable to the New York assets. At first glance, this appears fair.

However, when applied, it often resulted in an inequitable result by taxing a non-resident estate whose

New York assets were valued at less than one million dollars.

For example, assume that the exclusion is $1 million, the New York assets are $500,000, the gross estate

is $4 million and this is a non-resident decedent. Under the law in effect before April 1, 2014, this non-

resident estate would have had to pay a New York estate tax of $35,050, even though the New York

assets were only $500,000, well under the $1 million exclusion amount.

Under the new law, the non-resident’s estate tax is no longer calculated by applying a fraction to the

New York estate tax on the entire gross estate. Instead, the New York estate tax of a non-resident

decedent is computed on the New York assets only and then the full exclusion is applied to that tax. In

the above example, this would result in a zero New York estate tax on the non-resident estate.

3. But Let’s Be Fair: If You Didn’t Spend It Here –

In 2015, Section 960(b) of the Tax Law was amended to clarify that the computation of a New York

taxable estate will not include any deduction allowable under the Internal Revenue Code related to any

intangible personal property or non-New York realty or tangibles not includible in the New York gross

estate of a non-resident. This amendment applies to estates of non-resident individuals with dates of

death on or after April 1, 2014. The New York State Department of Taxation and Finance issued a

Technical Services Bulletin regarding the application of this rule.14

Under these rules, to calculate the New York estate tax of a non-resident, deductions that relate directly

to real and tangible property outside of New York are disallowed. Deductions that relate to intangible

property are also disallowed and deductions that are indirectly related to property outside of New York,

such as commissions and legal fees, are disallowed in part by allocating a pro rata portion to such

12 property. The allocation is computed by multiplying the indirect expenses by a fraction equal to the

value of the real and tangible property outside New York, plus the intangible property, over the value of

the gross estate.

4. Nothing is Perfect –

Although the 2014 revisions were a great leap forward, there remain many areas still in need of revision

from the standpoint of fairness, equity and parity with the federal system. One such area is New York’s

failure to adopt portability of the unused exemption amount of the first spouse to die. Portability has

been permitted for federal purposes since 2011. Another area is the estate tax “cliff,” which denies the

entire exclusion amount to estates which exceed 105 percent of the exclusion amount. This could result

in a marginal New York estate tax rate of over 170 percent, as follows: assume the basic exclusion

amount is $5.25 million, and that the taxable estate is $5,512,500, which exceeds the basic exclusion

amount by 105 percent. This estate would owe $452,300 of New York estate tax. If the estate had been

worth only $262,500 less, or $5.25 million, the New York estate tax would have been zero. The

additional assets of $262,500 generate an estate tax of $452,300. One potential method to reduce the

impact of this cliff effect would be to draft a formula-based charitable gift that would eliminate the cliff

effect. In the above example, a $262,500 charitable bequest would result in tax savings of $189,800.

Care would have to be taken, however, not to go overboard by failing to “cap” the resulting charitable

bequest.

Another problem stems from the fact that New York still has not passed legislation permitting state-only

QTIP elections. However, on March 16, 2010, the Department of Taxation and Finance issued a

statement interpreting current law as permitting a state-only QTIP under two specific circumstances: if

no Federal estate tax return was required to be filed, because the value of the gross estate was below the

Federal estate tax filing threshold; or, if there was no Federal estate tax in effect in the year of death (i.e.,

13 in 2010).15 Further guidance was issued by the Tax Department the following year clarifying that the

state-only QTIP election will not be permitted when a federal return is filed for any reason, including a

federal filing solely to make a portability election.16 So once again, the best advice is to stay alive . . . at

least until 2019 that is. And you don’t even have to be a non-resident to wish for this.

5. Stay Tuned –

Tomorrow is another day.

______

1. A careful reading of Sections 952 and 960 as they existed prior to February 1, 2000 indicates that similar problems could have been encountered during that era, but were less likely to have surfaced because New York’s tax almost always exceeded the available state death tax credit in those years. 2. Charles D. Fox IV, Robert C. Pomeroy and Susan L. Abbott, “Ramification for Estate Planners of the Phase-Out of the Federal State Death Tax Credit: Boom, Bust or Unknown?” 3. Senate 6060-A, later renumbered S.6060-B; Assembly 9560-A, later renumbered A.9560-B. 4. The Department was true to its word in the “China expatriate” estate (see IV(2), supra), and canceled its $93,468.97 assessment and fixed the tax at $22.71. 5. NY Tax Law § 960. 6. http://www.tax.ny.gov/pubs_and_bills/advisory_opinions/estate_AO.htm 7. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-10(1)M (April 8,2010). 8. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-11(1)M (October 12, 2011). 9. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-00(1)M (June 5, 2000). 10. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-01(1)M (July 31, 2001). 11. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-08(1)M (October 24, 2008). 12. NYS Dept. of Taxation and Finance Advisory Opinion TSB-A-15(1)M (May 29, 2015). 13. NYS Dept. of Taxation and Finance Technical Memorandum TSB-M-14(6)M (August 25, 2014). 14. NYS Dept. of Taxation and Finance Technical Memorandum TSB-M-15(4)M (October 27, 2015). 15. NYS Dept. of Taxation and Finance Technical Memorandum TSB-M-10(1)M (March 16, 2010). 16. NYS Dept. of Taxation and Finance Technical Memorandum TSB-M-11(9)M (July 29, 2011).

14 Edward A. McCoyd is of counsel to the firm of McCoyd, Parkas & Ronan LLP in Garden City, New York. He is a Fellow of the American College of Trust and Estate Counsel, a Member of the Litigation Subcommittee of the Trusts and Estates Law Section of the New York State Bar Association, a former Chair of the Surrogate’s Court Estates and Trusts Law Committee of the Nassau County Bar Association and Author of the novel Simpson’s Will.

Susan M. Bacigalupo is a former Chair of the Nassau County Bar Association Surrogate's Court Estates and Trust Committee and a partner with the Garden City law firm of McCoyd, Parkas & Ronan LLP, which practices exclusively in the areas of estate planning, probate and administration of estates and trusts, and estates and trust litigation.

THE NEW NEW YORK STATE ESTATE TAX REGIME, A

TRAP FOR THE UNWARY PROPOSED WILL

LANGUAGE TO SAVE ESTATE TAXES AND OBTAIN

DIRECT PECUNIARY BENEFIT FOR BENEFICIARIES

(SANTA CLAUSE)

by PAUL S. FORSTER, ESQ.

and LAURENCE KEISER, ESQ.

Stern Keiser & Panken LLP White Plains

The New New York State Estate Tax Regime, A Trap For The Unwary

Proposed Will Language to Save Estate Taxes and Obtain Direct Pecuniary Benefit for Beneficiaries (Santa Clause)

Chapter 59 of the Laws of 2014 (Part X) made significant amendments to the New York State estate tax effective for estates of individuals with dates of death on or after April 1, 2014. Prior to these amendments, the New York State estate tax was the maximum amount allowed on the federal estate tax return as a credit for state death taxes.

Among other things pertinent to this article, Chapter 59 increased the New

York State estate tax return filing thresholds as follows: effective for decedent’s who died on or after April 1, 2014 ($2,062,500), effective April 1, 2015

($3,125,000), effective April 1, 2016 ($4,187,500), effective April 1, 2017

($5,250,000), and effective January 1, 2019 (the Federal basic exclusion amount then in effect.) The Federal basic exclusion amount, insofar as presently is known, is $5,450,000 for decedents who die on or after January 1, 2016 and is subject to increase (indexed) thereafter based on inflation.

Under Chapter 59, the estate tax is computed based on the New York taxable estate using the following tax table:

If the New York taxable estate is: The tax is:

Not over $500,000 3.06% of taxable estate

Over $500,000 but not over $1,000,000 $15,300 plus 5.0% of excess over $500,000

Over $1,000,000 but not over $1,500,000 $40,300 plus 5.5% of excess over $1,000,000

Over $1,500,000 but not over $2,100,000 $67,800 plus 6.5% of excess over $1,500,000

Over $2,100,000 but not over $2,600,000 $106,800 plus 8.0% of excess over $2,100,000

Over $2,600,000 but not over $3,100,000 $146,800 plus 8.8% of excess over $2,600,000

Over $3,100,000 but not over $3,600,000 $190,800 plus 9.6% of excess over $3,100,000

Over $3,600,000 but not over $4,100,000 $238,800 plus 10.4% of excess over $3,600,000

Over $4,100,000 but not over $5,100,000 $290,800 plus 11.2% of excess over $4,100,000

Over $5,100,000 but not over $6,100,000 $402,800 plus 12.0% of excess over $5,100,000

Over $6,100,000 but not over $7,100,000 $522,800 plus 12.8% of excess over $6,100,000

Over $7,100,000 but not over $8,100,000 $650,800 plus 13.6% of excess over $7,100,000

Over $8,100,000 but not over $9,100,000 $786,800 plus 14.4% of excess over $8,100,000

Over $9,100,000 but not over $10,100,000 $930,800 plus 15.2% of excess over $9,100,000

Over $10,100,000 $1,082,800 plus 16.0% of excess over $10,100,000

It widely was believed that under the language of Chapter 59 of the Laws of

2014 (Part X) the tax tables would have expired for individuals with dates of death after March 31, 2015. This specifically was rectified by Chapter 59 of the Laws of

2015 (Part BB) to make the tax tables permanent.

Chapter 59 of the Laws of 2014 (Part X) also provides an applicable credit for certain estates.

As ‘explained’ in New York State Department of Taxation and Finance

Technical Memorandum TSB-M-14(6)M, which provides a summary of all of the amendments to the New York State estate tax effective April 1, 2014, which can be found at the Department’s website (www.tax.ny.gov), the applicable credit is allowed against the estate tax when a New York taxable estate (including gifts) is not greater than 105% of the basic exclusion amount. The amount of the credit cannot exceed the tax imposed.

If the New York taxable estate is less than or equal to the basic exclusion amount, the applicable credit amount will be the amount of tax that is computed on the taxable estate. The applicable credit is phased out as the New York taxable estate approaches 105% of the basic exclusion amount.

If the New York taxable estate is greater than the basic exclusion amount but not greater than 105% of the basic exclusion amount, then the applicable credit is equal to the estate tax that would be due on an amount computed by multiplying the basic exclusion amount by one minus a fraction.

The numerator of the fraction equals the New York taxable estate minus the basic exclusion amount, and the denominator equals five percent of the basic exclusion amount. This is very confusing stuff, and requires careful parsing of the language in order to create the correct algebraic equation. Common core it is not.

Pernicious Effect of New Estate Tax Regime

The purpose of this article is to explain the pernicious effect of the new New

York State estate tax regime as a trap for the unwary, and to suggest some Will (or trust) language (a Santa Clause) to protect clients and their beneficiaries.

The following is an example of how the ‘credit’ is applied, and how the Santa

Clause language would affect favorably the amounts received by the beneficiaries. Our example is based upon the estate of a decedent who died between April

1, 2015 and March 31, 2016. The taxable estate in our example is $3,200,000. The applicable credit is available because the taxable estate exceeds the basic exclusion amount ($3,125,000) which applies during that period by an amount ($75,000) that is less than or equal to 5% of the basic exclusion amount ($156,250).

The credit against the tax is equal to the estate tax that would be due on an amount computed by multiplying the basic exclusion amount ($3,125,000) by one

(1) minus a fraction. The numerator of the fraction equals the New York taxable estate ($3,200,000) minus the basic exclusion amount ($3,125,000) which equals

$75,000. The denominator of the fraction equals five (5) percent of the basic exclusion amount or $156,250 (5% X $3,125,000).

In our example, the credit would be $75,925, calculated as follows:

(3,125,000 x (1-75,000/156,250) = 3,125,000 x (1-.48) = 3,125,000 x .52 =

1,625,000. The credit would be the tax on 1,625,000.

Accordingly, the estate tax on $3,200,000, for a decedent dying between

4/1/15 and 3/31/16 would be $124,475, calculated as follows:

Taxable estate $3,200,000

Tax computed $200,400

Credit $75,925

Estate tax due $124,475

But wait a minute you say. If the taxable estate is $3,200,000 and the tax is

$124,475, the net estate distributable to the beneficiaries is only $3,075,525. If the taxable estate were only $3,125,000 there would be no tax due and the beneficiaries would get $3,125,000. With an estate that is $75,000 greater, they get

$49,475 less. How can this be? It is because the manner in which the credit is calculated phases out the credit in such a way as in our example the ‘marginal’ rate is 1.66%, or greater than 100%.

During our 4/1/15 to 3/31/16 period the credit phases out between a taxable estate of $3,125,000 and $3,281,250 (3,125,000 x 1.05%), as we have seen, a difference of $156,250. However the estate tax at the upper boundary of the phase- out range is $208,200, as against an increase in the taxable estate of only $156,250, still a marginal rate of 1.33%

But that is not the end of it. It is not until the taxable estate reaches

$3,338,717 that an increase in the taxable estate actually results in the beneficiaries getting more money. Put another way, the beneficiaries of a taxable estate of

$3,338,717, on which the estate tax is $213,717, end up getting only $3,125,000, which is the same amount that they would get on a taxable estate of $3,125,000 which would be exempt from tax. That means that the beneficiaries get no benefit of any portion of the additional $213,717.

But that is not the worst part of it. Because of the way the credit phases out, on estates between $3,125,001 and $3,338,716, the beneficiaries get less than

$3,125,000, the so-called ‘exempt’ amount.

For the estates of decedent’s dying between April 1, 2016 and March 31,

2017, the ‘exempt’ amount is $4,187,500. The credit phases out between $4,187,500 and $4,396,875. It is not until the taxable estate reaches $4,526,014, however, $338,514 more than the ‘exempt’ amount, that an increase in the estate will result in the beneficiaries getting more, and on estates between $4,187,501 and

$4,526,013, as the credit phases out the beneficiaries actually get less than

$4,187,500, the so-called ‘exempt’ amount.

Similarly, for the estates of decedent’s dying between April 1, 2017 and

December 31, 2018, the ‘exempt’ amount is $5,250,000. The credit phases out between $5,250,000 and $5,512,500. It is not until the taxable estate reaches

$5,728,182, however, $478,182 more than the ‘exempt’ amount, that an increase in the estate will result in the beneficiaries getting more, and on estates between

$5,250,001 and $5,728,181, as the credit phases out the beneficiaries actually get less than $5,250,000, the so-called ‘exempt’ amount.

To paraphrase Senator Dirksen, at $213,717, $338,514, and $478,182, in the respective periods, you are talking real money!

Santa Clause

All is not lost, however. It is proposed that the Santa Clause described below be included in all Wills or trusts in which the taxable estate may fall within the respective ranges.

Put simply, the effect of a Santa Clause is to authorize the executor of an estate within the ranges to make a charitable gift of so much of the estate as will reduce the taxable estate to the exempt amount. A proposed Santa Clause would read as follows:

“In the event my estate is taxable for New York State Estate Tax purposes, then, and in that event, I give, devise, and bequeath to: (choose one of the following three (3) alternatives)

1. particular named charity (ies);

2. my executor hereinafter named to be distributed by him to, between, or

among the following named charity (ies);

3. my executor hereinafter named to be distributed by him to, between, or

among such charity (ies) distributions to which are eligible to be deducted

for estate tax purposes as may be designated by him; the maximum portion of my estate as will result in a reduction of my net New

York State Estate Tax which equals or exceeds the amount so distributed.

Once the taxable estate exceeds the upper bounds described above, $3,338,717,

$4,526,014, and $5,728,182, during the pertinent periods, any distributions would exceed the tax imposed, and the Santa Clause would not apply, since there is no credit and the marginal rates applied would be 9.6%, 11.2% and 12%, respectively, which are only fractions of any amounts distributed.

Effect of Use of Santa Clause

Under examples 1, 2 and 3 of the proposed Will (or trust) clause above

(Santa Clause) in an estate in which the taxable estate otherwise would be

$3,200,000, a gift to charity of $75,000 would save the estate $124,475.

The benefit to the beneficiaries ($49,475) is calculated as follows:

(A) Will as written:

Taxable estate: $3,200,000

estate tax: (124,475)

net distributable: $3,075,525

(B) Will with Santa Clause:

Taxable estate: $3,125,000 ($3,200,000-$75,000)

estate tax: 0

net distributable to non-charitable beneficiaries: $3,125,000

It is hoped that this analysis has shed some light on this complicated subject and provides some helpful guidance to avoid the trap this estate tax regime lays for unsuspecting practitioners.

PLANNING FOR DIGITAL ASSETS

Jill Choate Beier, Esq.

Partner McGlashan Law Firm New York, NY

I. Introduction

A. How much exposure do we have to digital assets?

1. Number of people using social media – 1.61 billion1

2. Facebook users – 1.39 billion2

3. Flickr users – 92 million3

4. Gmail users – 500 million4

5. LinkedIn users – 347 million5

6. Twitter users – 288 million6

7. Yahoo! Mail users – 273 million7

8. YouTube users – 1 billion8

B. Recent anecdotes involving digital assets

1. The issue first gained attention in 2005 when the media reported about the family of a soldier who was killed by a bomb while stationed in Fallujah. The family wanted copies of email correspondence from his Yahoo! Email account.9

a. According to the soldier’s family, Corporal Ellsworth was keeping a journal to ensure this his generation and the generations that follow had words from someone who was in Iraq.

b. When the family approached Yahoo! regarding access to the emails, the company denied the request on the basis of privacy. The Ellsworth family brought suit in Michigan Probate Court.

1 Craig Smith, 20 Social Media Statistics You Probably Didn’t Know, December 21, 2014, DIGITAL MARKETING RAMBLINGS, available at http://expandedramblings.com/index.php/category/social-media/social- mediameasurement/ (website last checked Apr. 28, 2015). 2 Craig Smith, How Many People Use 800+ of the Top Social Media, Apps and Tools? Apr. 8, 2015, DIGITAL MARKETING RAMBLINGS, available at http://expandedramblings.com/index.php/resource-how-many- peopleuse-the-top-social-media/ (website last checked Apr. 28, 2015). 3 Id. 4 Id. 5 Id. 6 Id. 7 Id. 8 Id. 9 Who Owns Your E-mails?, BBC NEWS (Jan. 11, 2005, 2:29 P.M.), http://commens.org/13I09d7. c. The court appointed the father as personal representative of the estate and obtained a court order directing Yahoo! to turn over the emails. (N.B. Yahoo! was made a party to the proceeding.) 10

d. Yahoo! ultimately provided a C.D. with photographs and emails— but only the emails the deceased received because he set up the account not to save sent messages.

2. A blogger died suddenly of a heart attack during the night and his Flickr account, full of photos, was closed and unavailable to the family after his death.11

a. Mac Tonnies was unmarried and had no children. He had launched a blog in 2003 that had garnered a small but devoted following. His parents had no idea of Mac’s digital presence and did not know how to access it.

b. After the news of Mac’s death was posted by an anonymous user on his blog, there was an outpouring of messages in the form of tributes, grief and commentary.

3. The family of a 15-year old who committed suicide wanted access to their son’s Facebook account as they searched for answers. Facebook refused.12

4. Facebook was granted a motion to quash a subpoena ordering it to release content of the deceased’s Facebook account to her family to assist in determining whether her death was a suicide.13

5. In 2009, Kathleen Yockey’s daughter, Michaela, graduated from Florida State and was ready to start graduate school. But those dreams were cut short when Michaela was killed in a car accident.14

a. The Yockeys chose to memorialize her Facebook page, thinking it would freeze it. Instead, everything disappeared.

10 In re Ellsworth, No. 2005-296. 651-DE (Mich. Prob. Ct. 2005). 11 See Maria Perrone, What Happens When We Die: Estate Planning of Digital Assets, COMMON LAW CONSPECTUS, p. 197, Vol. 21 (2012). 12 Tracy Sears, Family, lawmakers push for Facebook changes following son's suicide, available at http://wtvr.com, January 8, 2013. 13 In re Facebook, Inc., 2012 U.S. Dist. LEXIS 134977 (N.D. Cal. Sept. 20, 2012). 14 Julie Gargotta, Proposed Bill would protect digital assets after you die, Bay News 9, Mar. 4, 2015, available at http://www.baynews9.com/content/news/baynews9/news/article.html/content/news/articles/cfn/2015/3/4/bill_would _protect_d.html?cid=rss. b. “It was like somebody had taken a stack of personal letters and memories and just threw them away,” said Yockey.

c. While Yockey has gotten much of the data back over time, it was devastating. “I want to keep not only those words that she said, but even things she didn’t say to me. You don’t, you can’t get those kind of memories back if they take them,” said Yockey.

d. Florida Senator Dorothy Hukill has introduced a bill that would allow an individual to designate an individual to access digital assets.

6. A grieving Oregon mother battled Facebook for full access to her deceased son's account.15

a. "Everybody's going to face this kind of a situation at some point in their lives," says Karen Williams, whose 22-year-old son died in a 2005 motorcycle accident.

b. The Oregon Legislature responded and took up the cause recently with a proposal that would have made it easier for loved ones to access the "digital assets" of the deceased, only to be turned back by pressure from the tech industry, which argued that both a 1986 U.S. federal law and voluntary terms of service agreements prohibit companies from sharing a person's information — even if such a request were included in a last will and testament.

7. When Bill and Kristi Anderson lost their son Jake in December 2013 from hypothermia, they were surprised to discover that without a search warrant, the law does not permit them access to Jake’s final text messages, phone calls or pictures. “Was he abducted? Did he get lost? We don’t know,” Kristi Anderson testified before lawmakers Tuesday morning, “but we think his cell phone could possibly contain some of those answers.” Jake’s parents want answers surrounding his death.16

a. Fortunately, Representative Debra Hilstrom wants to help them. “Imagine if your bank chose to treat your assets in the same way and said, ‘oh, no, you died, so no one can get access to your assets. We’d all be outraged.”17

15 Mother fights for access to her deceased son’s Facebook account, The Associated Press, Mar. 1, 2013, available at http://www.cbc.ca/news/technology/mother-fights-for-access-to-her-deceased-son-s-facebook-account- 1.1327683. 16 Tom Hauser, Family Fights to Access Late Son’s Digital Data, ABC Eyewitness News, Jan. 21, 2015, available at http://www.webcease.com/news/blog/105-family-fights-to-access-late-son-s-digital-data. 17 Id. b. Hilstrom authored a bill that would allow account holders or a personal representative of the deceased get access to digital assets, as long as the deceased does not prohibit access in their will. The Minnesota Legislature will hold additional hearings to vote on the bill.

8. Recently a New York attorney had to deal with Google concerning a decedent’s Gmail account. According to the attorney, Google is requiring an order from the court before it will grant the surviving spouse access to the decedent’s gmail account. The attorney reported that she received different answers from Google at different times, and believes that Google is still trying to determine how to handle these issues. First, they told her she only needed a death certificate, then they came back with the proposed order. It is not clear whether Kings County will accept the request or sign the order.

9. Access to digital assets may also be necessary during life. One such incident occurred in Maryland when an individual who ran a building supply business suffered a stroke.18

a. The individual kept all of his records -- what he ordered, who was owed products and what bills needed to be paid -- in a Yahoo! account.

b. The family attempted to get access to the account so the business could continue operating. Yahoo! denied the family access. Meanwhile, products were being delivered daily and could not be distributed to customers and the business went into a rapid decline.

c. The individual eventually regained consciousness, but was unable to understand and answer the “secret” questions.

d. Yahoo! continues to refuse to divulge the individual’s password and, as a result, he completely lost his business.

10. Not all individuals may want their digital assets revealed to family members upon death. Many accounts have passwords for a reason.19

18 Katy Steinmetz, States Seek A Way to Pass on Digital Accounts After You Die, TIME Swampland, July 27, 2013, available at http://swampland.time.com/2013/07/27/states-seek-a-way-to-pass-on-digital-accounts-after-you-die/. 19 See e.g., Geoffrey A. Fowler, Life and Death Online: Who Controls a Digital Legacy?, WALL ST. J. Jan. 5, 2012, available at http://online.wsj.com/news/articles/ (describing a teenager who had a secret second blog in which she wrote many “dark” passages). II. Current Legal Landscape

A. Federal Privacy Laws

1. Computer Fraud and Abuse Act (CFAA) a. Prohibits unauthorized access to computers and protects against anyone who “intentionally accesses a computer without authorization or exceeds authorized access.”20 b. The statute does not define what it means to “exceed authorized access.” 2. Electronic Computer Privacy Act and the Stored Communications Act (“SCA”)

a. Makes it a crime for anyone to “intentionally access without authorization a facility through which an electronic communication service is provided”21 as well as to “intentionally exceed an authorization to access that facility.”22

b. Technically, this prohibited behavior would include violating a Terms of Service agreement and subject the violator to criminal sanctions.

c. Prohibits an electronic communications service from knowingly divulging the contents of a communication that is stored by or maintained on that service unless disclosure is made “to an addressee or intended recipient of such communication or an agent of such addressee or intended recipient” or “with the lawful consent of the originator or an addressee or intended recipient of such communication, . . . .”23

d. Federal law distinguishes between the permissible disclosure of the catalogue (logs and records) that electronic communication services providers may release with or without consent under the SCA and the electronic content for which consent is required before the service provider may disclose it to a third party.24

e. Non-content material or the catalogue information can be disclosed either with the lawful consent of the account holder or to any

20 18 U.S.C. § 1030(a). 21 18 U.S.C. § 2701(a). 22 Id. 23 18 U.S.C. § 2702(b)(1) and (3). 24 18 U.S.C. § 2702 et. seq. person (other than a governmental entity) even without lawful consent.25

f. Content-based material can be divided into two types of communications: those received by the account holder and those sent by the account holder.

1) When the account holder is the “addressee or intended recipient,” material can be disclosed to that individual or an agent for that person26 and it can also be disclosed to third parties with the “lawful consent” of the addressee or intended recipient.27

2) Material for which the account holder is the “originator” can be disclosed to third parties only with the account holder’s “lawful consent.”28

B. State Laws 1. All 50 states have enacted statutes criminalizing unauthorized access to computer systems.29

2. New York Penal Code Article 156 et. seq.

§ 156.05. Unauthorized use of a computer

A person is guilty of unauthorized use of a computer when he or she knowingly uses, causes to be used, or accesses a computer, computer service, or computer network without authorization.

Unauthorized use of a computer is a class A misdemeanor.

25 See 18 U.S.C. § 2702(c)(6) (which sets forth an exception to the general rule for disclosure of customer records by providing that a service provider “may divulge a record or other information pertaining to a subscriber to or customer of such service (not including the contents of communications…) to any person other than a governmental entity”). 26 18 U.S.C. § 2702 (b)(1). 27 18 U.S.C. § 2702(b)(3). 28 18 U.S.C. § 2702(b)(3). 29 See Jim Lamm, “Planning Ahead for Access to a Decedent’s Online Accounts” available at http://www.digitalpassing.com/2012/02/09/planning-ahead-access-contents-decedent-online-accounts/, February 9, 2012 in which Lamm reports that all fifty states have enacted criminal laws penalizing unauthorized access to computer systems; see e.g. CAL. PENAL CODE § 502 (2010); FLA. STAT. ANN. § 815.06 (2013); 720 ILL. COMP. STAT. 5/17-51 (2012); NY CLS PENAL § 156.05 (2012); TEX. PENAL CODE § 33.01 et seq. (2009). § 156.10. Computer trespass

A person is guilty of computer trespass when he or she knowingly uses, causes to be used, or accesses a computer, computer service, or computer network without authorization and: 1. he or she does so with an intent to commit or attempt to commit or further the commission of any felony; or 2. he or she thereby knowingly gains access to computer material.

Computer trespass is a class E felony.

§ 156.20. Computer tampering in the fourth degree

A person is guilty of computer tampering in the fourth degree when he or she uses, causes to be used, or accesses a computer, computer service, or computer network without authorization and he or she intentionally alters in any manner or destroys computer data or a computer program of another person.

Computer tampering in the fourth degree is a class A misdemeanor

C. Service provider Terms of Service agreements (“TOS”)

1. Most people in most states will be subject to the terms of the TOS if the service provider has a policy regarding the transfer or disposal of account access and content.30

2. Shutterfly's TOS states that the individual agrees not to disclose his or her username or password to any third party and acknowledges that the individual's access to the account is non-transferable.31

3. The TOS for LinkedIn, Google and Twitter each contain similar language regarding disclosure of the secured access information and transferability.32

4. Gmail has a policy for potentially releasing emails to the personal

30 Service providers routinely amend the TOS agreements with no notice to the account holder, so it is wise to periodically check the service provider’s website for any changes to the TOS. 31 See http://www.shutterfly.com/help/terms.jsp. 32 See http://www.linkedin.com/static?key=user_agreement&trk=hb_ft_userag; http://www.google.com/intl/en/policies/terms/; https://twitter.com/TOS. representative of a deceased account holder.33 The policy makes it clear, however, that a court order will be required and there is no guarantee the email content will be released. .34

5. Yahoo! explicitly states in its TOS that the account cannot be transferred and any rights to content within the user's email account terminate upon death and all content may be permanently deleted.35

6. Facebook allows someone to report a user as deceased and the deceased user's Facebook page may then be converted into a memorial to the deceased user.

a. Up until recently, only confirmed friends will continue to have access to the deceased user's profile and may continue to post messages in memoriam on the deceased user's wall.36

b. In March 2014, Facebook announced a new policy that the account of a deceased user will be visible “as-is.”37

D. Case law application of privacy laws

1. In re Facebook, Inc. 38 - 23-year old fell 12 floors from estranged husband’s flat in London. The authorities ruled her death a suicide, but the family did not believe it. The family wanted access to her Facebook posts because they believed it would provide evidence of her state of mind.

a. The District Court in California quashed the subpoena ordering Facebook to produce the content and stated that to hold otherwise would run afoul of the specific privacy interests the SCA seeks to protect.

b. The court rejected the notion that the family members were agents who could provide consent to access the Facebook account and further stated that even if they could provide consent, the language in SCA does not require Facebook to produce the contents, only permits them to do so. Facebook has yet to produce the contents of the account.

33 http://support.google.com/mail/answer/14300?hl=en&ref_topic=1669055. 34 Id. 35 http://help.yahoo.com/kb/index?page=product&y=PROD_ACCT&locale=en_US. 36 See http://www.facebook.com/help/?ref=pf#!/help/103897939701143/?q=death&sid=0G0Ow9oru3HcT7v4v 37 Evan Carroll, Facebook Changes Policy on Privacy Settings for Memorialized Accounts, The Digital Beyond, March 15, 2014, available at http://www.thedigitalbeyond.com. 38 U.S. Dist. LEXIS 134977 (N.D. Cal. Sept. 20, 2012). 2. In re Ellsworth39 - Yahoo! rejected the request of the family of a soldier killed by a bomb while stationed in Fallujah based on privacy grounds. The family wanted copies of email correspondence from his Yahoo! email account and access to a journal that the soldier said he was keeping.

3. Ajemian v. Yahoo! Inc.40 – co-administrators of their brother’s estate brought a declaratory judgment action seeking a declaration that the electronic mail messages that the brother sent and received using Yahoo! mail are property of his estate.

a. Robert (co-administrator) opened an email account for his brother, John (decedent) as co-users but the account was to be primarily used by John. Robert continued to access the email account from time to time. At the time of John’s death, Robert had not accessed the account for a long period and had forgotten the password.

b. After appointment by the Massachusetts Probate Court, the co- administrators tried to obtain access to the email account to help identify and locate assets and administer John’s estate. Yahoo! initially agreed to turn over the information provided the family produced proper documentation but then later refused to provide access to the contents citing the SCA which Yahoo! interpreted to “preclude disclosing John’s emails even to the administrators of his estate.”41

c. Further negotiations resulted in a partial resolution in which the co- administrators would obtain a court order requiring production of only the catalogue information but not the contents. The court order was obtained and Yahoo! turned over the catalogue information.

d. The co-administrators continued to seek access to the content of the emails and Yahoo! repeatedly denied such access. The co- administrators filed this action and the probate court judge dismissed the action after Yahoo! argued that the forum selection clause in the TOS requires the action to be brought in California. The co-administrators appealed.42

4. In 2005 after twenty-two-year-old Loren Williams was killed in a motorcycle accident, his mother, Karen, hoped to learn more about her son after his death. She found her son’s password and then emailed Facebook

39 No. 2005-296. 651-DE (Mich. Prob. Ct. 2005). Yahoo! ultimately provided a C.D. with photographs and emails— but only the emails the deceased received because he set up the account not to save sent messages. 40 987 N.E.2d 604 (Mass. App. Ct. 2013). 41 Ajemian, 987 N.E.2d 604, 609. 42 Id. requesting that administrators maintain the account in order for her to review his posts and comments by his friends. Within two hours of Karen’s request, Facebook administrators had changed her son‘s passwords, essentially locking her out of his account. Karen subsequently filed a lawsuit against Facebook, and, after a two-year legal battle, Facebook granted her ten months of access to Loren‘s account. After this ten-month period, Loren’s Facebook profile was removed.43

III. Accessing Digital Assets A. State laws – only 9 states have enacted laws relating to access to digital assets

1. Connecticut enacted the first statute in this country in 200544 to respond to situations similar to that of the Ellsworth family whose son was killed by a bomb in Fallujah and was unable to obtain the contents of his email account from Yahoo!.

2. Rhode Island enacted a statute in 2007 similar to the Connecticut statute which also only deals with fiduciary access to a deceased person's email account. The statute require a court order that includes the indemnification of the service provider. 45

3. Indiana enacted a statute that attempts to deal with additional types of digital assets.46 The Indiana statute provides that a custodian47 "shall provide to the personal representative of the estate of a deceased person, who was domiciled in Indiana at the time of the person’s death, access to or copies of any documents or information of the deceased person stored electronically by the custodian . . . ."48

4. Oklahoma’s statute provides:

The executor or administrator of an estate shall have the power, where otherwise authorized, to take control of, conduct, continue, or terminate any accounts of a deceased person on any social networking website, any microblogging or short message service website or any e-mail service

43 Karen Williams’ Facebook Saga Raises Question of Whether Users’ Profiles Are Part of ‘Digital Estates’, HUFF POST TECH (Mar. 15, 2012, 5:57 PM), http://commcns.org/1022lHS. 44 See CONN. GEN. STAT. § 45a-334a (2013). 45 See R.I. GEN. LAWS § 33-27-3 (2012). 46 See BURNS IND. CODE ANN. § 29-1-13-1.1 (2012). 47 BURNS IND. CODE ANN. § 29-1-13-1.1(a) (2012) defines custodian as "any person who electronically stores the documents or information of another person." 48 BURNS IND. CODE ANN. § 29-1-13-1.1(b) (2012). websites.49

5. Idaho's statute uses virtually identical language, but the language is applicable for both personal representatives50 and conservators of person with a disability.51

6. Nevada statute only allows the personal representative of the decedent to

“direct the termination of any account of the decedent…”52 which includes social networking accounts, email accounts, short message services, web log services and microblog services. The statute specifically excludes accounts association with financial institutions.53

7. The Virginia statute was crafted to specifically address the inability of the Rash family, whose 15-year old committed suicide, to gain access to their son's Facebook account.54

a. The statute, however, only addresses the access of digital accounts that were controlled by a minor.55

b. The personal representative of a minor is allowed to assume the minor’s position with respect to each service provider agreement executed by the minor for each of the minor’s online accounts.56

c. The statute specifically excludes accounts association with financial institutions.57

d. Virginia recently passed the Privacy Expectation Afterlife and Choices Act (discussed below) although it has not been signed into law.

8. Delaware’s law became effective January 1, 2015.58

a. To date, this is the broadest state law dealing with digital assets to be enacted.

b. The law is loosely modeled after the UFADAA (discussed below)

49 OKL. ST. § 58-269 (2012). 50 See IDAHO CODE § 15-3-715(28) (2012). 51 See IDAHO CODE § 15-5-424(z) (2012). 52 NEV. REV. STAT. § 143.188(1) (2013). 53 NEV. REV. STAT. § 143.188(2) (2013). 54 See Note 2 supra. 55 See VA. CODE ANN. §§ 64.2-109 and 110 (2013). 56 VA. CODE ANN. §§ 64.2-110.A (2013). 57 VA. CODE ANN. §§ 64.2-109 (2013). 58 See 12 DEL. C. §§ 5001 through 5007. and addresses access to digital assets by a personal representative, guardian, trustee and agent acting under a power of attorney.59

c. The statute is a default statute that allows fiduciary access to digital assets unless otherwise prohibited in the governing instrument.

d. Yahoo! Response to Delaware law – in a recent article, Yahoo! criticized Delaware’s new legislation. Yahoo! stated that the main issue with Delaware’s law is the presumption that the deceased would want his or her digital assets to be accessed by the fiduciary. Facebook agreed with Yahoo!’s response.60

9. Louisiana recently passed a law dealing with digital assets.61

a. “. . . succession representative shall have the power and authority to take control of, handle, conduct, continue, distribute, or terminate any digital account of the decedent.”

b. Succession representative is considered an authorized user.

10. Several states have recently introduced digital asset legislation but to date no proposed bills have been signed into law.62

B. A Uniform Law

1. In October 2014, the Uniform Law Commission finalized and issue the Uniform Fiduciary Access to Digital Assets Act63 – very broad and contemplates access to digital assets and accounts by executor, guardian, attorney-in-fact and trustee.

2. The definitions of content and catalogue are adapted from SCA. The definitions are designed to cover log-type information and the content subject to coverage of the SCA.

“Catalogue of electronic communications” means information that identifies each person with which an account holder has had an electronic communication, the time and date of the communication, and the electronic address of the person.

59 See id. 60 Zach Miners, Yahoo slams new ‘digital will’ law, says users have privacy when they die, PCWORLD, September 15, 2014, available at http://www.pcworld.com/article/2683472/yahoo-slams-new-digital-will-law-says-users-have- privacy-when-they-die.html. 61 LA. CODE CIV. PROC. ANN. ART. 3191 (2015). 62 California, Colorado, Florida, Minnesota, New Hampshire and New Jersey have introduced digital asset legislation. 63 The final report of the drafting committee dated October 3, 2014 may be found at http://www.uniformlaws.org. “Content of electronic communications” means information concerning the substance, or meaning of the communication which: (A) had been sent or received by the account holder; (B) is in electronic storage by a custodian providing an electronic- communication service to the public or is carried or maintained by a custodian providing a remote-computing service to the public; and (C) is not readily accessible to the public.

“Digital asset” means a record that is electronic. The term does not include an underlying asset or liability unless the asset or liability is itself a record that is electronic

3. UFADAA clarifies the difference between a fiduciary’s authority over digital assets other than the content of an electronic communication and authority over SCA-protected content of an electronic communication.

4. UFADAA provides a default rule to provide access to executors and trustees. For guardians/custodians, the power must be specifically authorized in the governing instrument.

5. The October 2014 version of UFADAA was approved by the ULC and in 2015, over 20 states introduced it as proposed legislation.

6. The American Bar Association formally approved UFADAA for enactment by the states.64

7. The National Academy of Elder Law Attorneys has formally endorsed UFADAA.65

8. Not a single state has successfully enacted the October 2014 UFADAA and in many states the legislation was handily defeated.

C. Potential issues with statutory access to digital assets

1. Federal Preemption

a. The enactment of state laws in the area of digital assets raises the issue of preemption. Federal law may impliedly preempt state law where there is a conflict between state law and federal law.

b. This type of preemption can occur either

64 ABA Approves Three Uniform Acts at its Recent Midyear Meeting, Feb. 13, 2015, available at http://www.uniformlaws.org/NewsDetail.aspx?title=ABA%20Approves%20Three%20Uniform%20Acts%20at%20i ts%20Recent%20Midyear%20Meeting. 65 See letter from NAELA to Uniform Law Commissioner Suzy Walsh, available at http://www.naela.org/NAELADocs/PDF/Public%20Policy/NAELA%20support%20UFADAA.PDF. 1) when it is impossible for someone to comply with state and federal laws simultaneously, or

2) when the purposes and objectives of federal law would be thwarted by state law.66

c. Consequently, a challenge to any state law providing access to digital assets on the ground that such law conflicts with federal privacy laws may be eminent.

2. Permissive nature of the SCA

a. The SCA does not require the service provider to disclose the electronic catalogue or content even if the proper authorization is obtained.67

b. At least one court has pointed out the SCA’s permissive language and held that even if the family members were deemed agents of the deceased, the service provider does not have to comply with the request for disclosure.68

3. Choice of law and forum selection clause in TOS

a. Shutterfly, Twitter, LinkedIn, Yahoo!, Facebook and Google are each governed by the laws of the State of California and subject to jurisdiction in California.

b. Hotmail is governed by the State of Washington and subject to jurisdiction in Washington.

c. Even where the deceased resides in a state with a statute governing the disposition of and access to the deceased's digital assets, the TOS may override the state law where the deceased resides.

d. The forum selection clause will likely determine in what court any action may be brought, which effectively may act as a barrier for family members of the deceased user.

66 U.S. Const. Art. VI, cl. 2. 67 See 18 U.S.C. § 2702(c)(6) (which sets forth an exception to the general rule for disclosure of customer records by providing that a service provider “MAY divulge a record or other information pertaining to a subscriber to or customer of such service . . .” (emphasis added). 68 See In re Facebook, Inc., U.S. Dist. LEXIS 134977 (N.D. Cal. Sept. 20, 2012) where the court stated that “under the plain language of Section 2702, while consent may permit production by a provider, it may not require such a production”. e. Click wrap versus Browse wrap

1) Whether the TOS is enforceable as a contract of adhesion is still unsettled.

2) The courts have drawn a distinction in the manner in which an individual agrees to the terms of the TOS and determined enforceability of the provisions of the TOS in accordance with that distinction.

3) A “click wrap” agreement is one in which an individual agrees to the TOS of the service provider by affirmatively clicking on the “I Agree” button prior to clicking on the button to create the account

4) A “browse wrap” agreement is one in which the sign up page simply includes a statement that the user agrees to the terms of the agreement by creating an account and using the service.

5) The Ajemian69 case discussed above involved browse wrap and click wrap agreements.

a) At issue was whether forum selection clause in a TOS agreed to by decedent is enforceable against executors of estate.

b) The court stated that Yahoo! had the burden of demonstrating that the forum selection clause in the TOS was “reasonably communicated and accepted.”

c) The court further stated that a forum selection clause has almost always been enforced in a “click- wrap” agreement, but that such a clause in a “browse-wrap” agreement has not.

d) The court distinguished between a TOS in which the terms were displayed on the screen for the user to see and a TOS in which the user had to follow a link to view the terms.

e) In the latter case, the court stated that the reasonable communication of the terms would depend upon the location of the link, the conspicuousness of the link

69 Ajemian v. Yahoo! Inc., 987 N.E.2d 604, 615 (Mass. App. Ct. 2013). and the user’s ability to manifest acceptance of the terms.

4. Technology Industry response to UFADAA

a. The technology industry and privacy advocates have lobbied state legislatures tirelessly to block any enactment of the October 2014 UFADAA. Two alternative approaches to access to digital assets have been developed.

b. Model Fiduciary Access to Digital Assets70

1) Requires a court order prior to the access of digital assets by the executor.

2) Allows access to the content of the account holder’s account.

3) Requires the estate to indemnify the service provider who discloses the contents of the account holder’s digital assets.

c. Privacy Expectations Afterlife and Choices Act71

1) Always requires a court order prior to access of digital assets by the executor.

2) Allows access to content only upon court order determining that account holder authorized the access.

3) Limits the disclosure of the account holder’s record to a period of one year prior to the account holder’s death.

4) Allows the provider to quash the order if it can establish that the request poses an undue burden on the provider.

5) Provides immunity to the provider for compliance with the court order.

d. In the wake of industry and privacy advocate pressure, the Uniform Law Commission revised UFADAA and reissued the revised version in July 2015.72 See Exhibit A comparison chart of original UFADAA, PEAC and revised UFADAA.

70 Drafted by the American Legislative Exchange Council available at http://www.alec.org/model-legislation/model- fiduciary-access-to-digital-assets-act/. 71 Available at http://netchoice.org/library/privacy-expectation-afterlife-choices-act-peac/. 72 Available at http://www.uniformlaws.org/shared/docs/Fiduciary%20Access%20to%20Digital%20Assets/ 1) No longer provides the fiduciary with default access to the electronic content. The account holder must specifically provide access in the governing instrument.

2) Any online designation made by testator supersedes any contrary instruction in the will.

3) Service provider has the right to request a court order that states disclosure of the electronic content by the service provider does not violate federal law and that the disclosure is required by the fiduciary to carry out his or her duties as fiduciary.

IV. Planning for Digital Assets

A. Step One – Identify what the client owns

1. Digital Estate Resource is a website that provides information to attorneys about digital assets. The website contains a definition of the physical devices that store digital data and has introduced a separate definition for digital accounts.73

2. The definition of digital assets has evolved over the last 2 to 3 years and now no longer includes physical devices which are really tangible personal property and can be transferred at death along with all other tangible personal property.

3. Digital assets, therefore, can be found in many different forms and include items such as music, videos, medical records, tax documents, financial records, photographs stored on websites such as Shutterfly or Flickr, or generic file storage sites in the Cloud such as Dropbox.

4. Digital accounts include social media websites, such as Facebook, Twitter, LinkedIn, Pinterest, Tumblr or Instagram74 and other secured access sites such as email accounts with Yahoo!, Gmail or Hotmail75, on-line banking

UFADAA_Clean_Revised_2015AM.pdf. 73 Evan Carroll, Digital Assets: A Clearer Definition, DIGITAL ESTATE RES. (Jan. 30, 2012) available at http://www.digitalestateresource.com/2012/01/digital-assets-a-clearer-definition/ (defining physical devices to include desktop computers, laptops, tablets, storage devices, mobile telephones, and smartphones and defining digital accounts to include email accounts, software licenses, social network accounts, file sharing accounts, financial management accounts, etc.). 74 Sample websites taken from "Top 15 Most Popular Social Networking Sites," updated October 2014, available at http://www.ebizmba.com (website last checked October 12, 2014). 75 It should be noted that these email account providers are free services. Many people pay a fee for their email service to companies such as Time Warner Cable, Optimum Online and AT&T. For these types of services, the email accounts will remain active as long as the fee is paid. accounts, PayPal accounts, eBay accounts and Amazon accounts, just to name a few.

5. The definition has evolved so that the electronic account is separate from the electronic content in that account. This distinction is particularly important when considering the implication of Federal privacy laws.

6. Digital Assets with sentimental value a. Social media accounts such as Facebook, MySpace, Twitter and Instagram b. Websites that warehouse personal photographs, such as Shutterfly and Flickr c. Electronic email accounts such as Gmail, Hotmail, Yahoo! Mail

7. Digital Assets with monetary value a. Facebook contains a feature entitled “Facebook Credits” whereby individuals acquire credits by using the site or purchasing the credits with a credit card, debit account or PayPal account.76 These accounts may have stored credits upon the death of the owner that are valuable.

b. A client may have created a blog that is popular or becomes popular and generates advertising dollars.

c. The content on the blogs, which are likely “original works of authorship fixed in a tangible medium of expression”,77 may also invoke copyright law.

d. Click-through fees - Investment News recently published an article that focused on a retired commercial pilot who developed a loyal following to the tune of 1 million followers on his Pinterest account which features photographs of various types of flowers and blossoms from his garden.78

76 Chelsea Ray, ‘Til Death Do Us Part: A Proposal for Handling Digital Assets After Death,” 47 REAL PROP., TRUST AND ESTATE L. J. Winter 2013 at p. 593. 77 Copyright Act, 17 U.S.C. § 102(a) (2006). 78 Darla Mercado, The Latest Wrinkle in Estate Planning: Digital Assets, Investment News, July 20, 2014, available at http://www.investmentnews.com/article/20140720/REG/307209998/the-latest-wrinkle-in-estate-planning-digital- assets. (the pilot has accumulated about 1.6 million followers on Pinterest and receives as much as $10,000 a month for driving traffic to other sites through his posts). e. Domain names

1) A client may own the rights to a domain name that is valuable or will be valuable in the future.

2) Recent sales of domain names79:

a) MI.com sold for $3.6 million.

b) Whisky.com sold for $3.1 million.

c) Teamwork.com sold for $675 thousand.

3) How do you know if your client’s domain name is valuable?

a) Just because a client has a registered domain name, does not mean he or she owns it. The client could simply have the right to use the domain name for a period of years (typically 10 years). Check with a domain name registry such as GoDaddy.com to find out more.

b) Other factors80:

i. “.com” is still the preferred extension and is more valuable.

ii. Shorter is better.

iii. Hyphens are less valuable.

iv. Misspellings cut the value.

v. Fewer words are better.

vi.

f. Participation in frequent flyer and frequent stay programs allows the individual to redeem miles or points in exchange for free flights and/or hotel rooms.

1) Many of these programs allow the program participant to redeem points and assign another person’s name to appear on

79 See DN Journal available at http://www.dnjournal.com/ytd-sales-charts.htm. 80 See Determining the Value of Domain Names available at http://www.igoldrush.com/domain- guide/domainbuying-and-selling/determining-the-value-of-your-domain-names. the airline ticket, effectively transferring the earned miles or points.81

2) Be wary that not all airlines treat the transfer of frequent flier miles on death equally. Some airlines will allow transfer if you call them directly and you may have to pay a fee. Other airlines will not allow for a transfer upon death.

g. Virtual property exists within virtual worlds, such as gaming sites in which the user creates virtual identities and personas. 82

1) Virtual items may have real monetary value and virtual items have sold for prices ranging from $16,000 (a virtual sword) to $6 million (for a planet for the Entropia Universe).83

2) Second Life allows used to buy, sell and trade with other residents using “Linden Dollars.”

3) Users can create avatars and other digital persona. The existence of these digital assets has impacted other areas of law, including criminal law.84

4) This virtual property involves property rights, but it is still somewhat up for debate to what extent property rights apply.

h. Bitcoins85

1) Currency created in 2009. Holders of bitcoins can use them to pay for transactions with no intermediary and little or no fees involved.

2) The value of Bitcoins fluctuates wildly and in the last six months have been valued anywhere from $250 to $600 each.

3) Bitcoins can be stored in a digital wallet but it is not necessary. An individual can hold the cryptographical password that

81 See e.g., American Airlines AAdvantange Program Terms and Conditions available at http://www.aa.com/i18n/AAdvantage/programInformation/termsConditions.jsp. 82 See Bobby Glushko, Tales of the (Virtual) City: Governing Property Disputes in Virtual Worlds, 22 BERKELEY TECH. L.J. 507, 511. (2011). 83 See www.bornrich.com (April 23, 2011). 84 Olivia Y. Truong, Virtual Inheritance: Assigning More Virtual Property Rights, 2009 SYRACUSE SCI. & TECH. L. REP. 57, 59 (Fall 2009) (in August 2008, a U.S. woman was charged with plotting the real-life abduction of a boyfriend she met on a virtual game world; another online episode prompted police to arrest a teenager for swindling virtual currency worth $ 360,000 in an interactive role playing game by manipulating another player's portfolio using a stolen ID and password). 85 Russell Goldman, What are Bitcoins? Virtual Currency Explained (Like You’re an Idiot), abcnews.com, Nov. 18, 2013, available at http://abcnews.go.com/Technology/bitcoins-virtual-currency-explained-idiot/story?id=20926230. validates ownership in a text file or some other location and use it when he or she wants to use the bitcoins.

4) If the bitcoins are held in a digital wallet, they are more susceptible to hacking and/or accidental deletion. If the bitcoins are stolen or lost, there is no recourse.

5) Some online retailers are accepting bitcoins for purchases such as WordPress and Overstock.com.

i. Digital Music and Books

1) iTunes provides access to music, books, movies and apps. The Service Provider Agreement varies depending upon which product has been accessed and downloaded.86

a) The user must first establish an Apple account to access the iTunes Store. The Apple account Terms and Conditions make it clear that access to the Apple software is a license that may not be transferred. It also indicates that if the account holder provides express permission then another person may access the account holder’s account.87

b) The iTunes agreement seems to imply that music files are purchased and movies, books and apps are licensed. However, downloaded music files may be used on multiple devices as defined in the agreement which does not coincide with outright ownership of music.88

c) These restrictions on copying music may be consistent with current copyright laws, such as the “first sale” doctrine.89 2) Amazon books for the Kindle

a) Amazon’s agreement is clear that the user’s account is only a license to use Amazon’s services and requires the user to maintain the confidentiality of his or her password.90

86 See http://www.apple.com/legal/internet-services/terms/site.html. 87 See http://www.apple.com/legal/internet-services/itunes/us/terms.html#SALE. 88 See id. 89 See 17 U.S.C. § 109(a) (2012) which grants the owner of a copy to dispose of that copy; see also CleanFlicks of Colo. LLC v. Soderbergh, 433 F.Supp.2d 1236, 1242 (D. Colo. 2006) (“[The first sale] doctrine protects the purchaser in any use of the authorized copy acquired but does not permit the making of additional copies.”). 90 See http://www.amazon.com/gp/help/customer/display.html/. b) The Kindle Store Terms of Use agreement is clear that the Kindle Content downloaded is licensed and not sold to the user.91

3) Simply having access to the tangible personal property on which the content is stored, e.g., the Nook, iPad, iPhone, iPod, etc. and having the password may eliminate some of the licensing restrictions, but it is likely that this circumvents the law.

4) Having a digital back up of the music and book files on a flash drive or a backup device may allow access to the music and book files so long as the file types are compatible with the device being used to access them.

B. Step Two – Consider the various objectives for digital asset planning 1. Ease the burden on the surviving family members and the executor/administrator of dealing with digital assets

a. Without a complete and accurate list of accounts and the information necessary to access them, the survivors have a daunting amount of work ahead of them

b. Particularly when a death is unexpected, the survivors want immediate access to any memories, e.g., emails, photographs, blog posts, etc.

2. Prevent identity theft

a. Over the course of a year, the IRS paid out $12.1 million in refunds to over 5,000 dead people. The Social Security Death Index which lists all deaths reported to the SSA is publicly available on the Internet.92

b. Facebook will create a memorial page to a deceased Facebook account holder so would-be identity thieves have ample access to the deceased’s personal information.

c. Thieves find critical pieces of information from obituaries.

91 See http://www.amazon.com/gp/help/customer/display.html/ref=hp_left_cn?ie=UTF8&nodeId=200154280. 92 Janet Novak, IRS Pays Refunds to 5,000 Dead People in Post-Mortem Identity Theft Scam, FORBES.COM, May 6, 2011, available at http://www.forbes.com/sites/janetnovack/2011/05/06/irs-pays-refunds-to-5000-dead-people- inpost-mortem-identity-theft-scam/. d. Accounts that are not regularly monitored for spam, phishing and other cyber-attacks make the identity of the owner of that account vulnerable to attack.

e. It can take six months for financial institutions, credit-reporting bureaus and the Social Security Administration to receive, share or register death records. That gives hackers and identity thieves plenty of time to open bank accounts, credit card accounts, get jobs and a host of other things before anyone will detect them.93

3. Prevent unwanted secrets from being discovered or revealed: Post-mortem privacy

a. It is not universal that a decedent will want his or her family members to have access to every electronic email account or blog or other type of digital asset.

b. Generally, the law provides that any action for defamation, invasion of privacy or breach of confidence dies with the person. So, any access to unwanted secrets may not be protected if they end up in the wrong hands.94

c. Clients who have celebrity status or are a public figure may be particularly concerned with the exploitation of his or her image, name and other digital information after death.

d. Some states have begun to recognize a post-mortem right of publicity. Therefore, an estate plan is needed to administer such rights.

1) Florida recognizes the right of publicity for 40 years after death.95

2) Illinois recognizes the right of publicity for 50 years after death.96

3) California recognizes the right of publicity for 70 years after death.97

93 Sid Kirchheimer, Protecting the Dead from Identity Theft, AARP BULLETIN, March 6, 2013, available at http://www.aarp.org/money/scams-fraud/info-03-2013/protecting-the-dead-from-identity-theft.html. 94 Lilian Edwards and Edina Harbinja, Protecting Post-Mortem Privacy: Reconsidering the Privacy Interests of the Deceased in a Digital World, 32 CARDOZO ARTS & ENT. LJ 83, 102 (2013). 95 John E. Ottaviani and Allison A. Reuter, Maybe You Can Take it With You: Post-Mortem Rights of Publicity in the United States, WORLD TRADEMARK REV., 118-19 (Oct./Nov. 2012). 96 Id. 97 Id. 4) Indiana recognizes the right of publicity for 100 years after death.98

5) Nevada, Illinois and Washington recognize the right of publicity for non-celebrities but the term of protection is limited to 10 years in most cases.99

e. Some states have begun to reject the concept that libel claims die with the victim.100

1) U.S. Supreme Court recognized that a person’s interest in protecting his reputation does not end upon death.101

2) Rhode Island is the only state that provides a cause of action for defamation of the deceased and only in limited circumstances.102

4. Preserve the deceased’s life story

a. The soldier in Fallujah intended to keep a journal of his experiences in Iraq.

b. Photographs, emails, Tweets and other types of message are the electronic equivalent of photo albums and boxes full of letters.

c. Digital assets can have an indefinite lifespan so it is crucial to protect the deceased’s digital legacy.

5. Prevent losses to the estate103

a. Many clients are the owners of small- to medium-sized businesses. There are many reasons for these clients to protect their digital assets in addition to protecting the business and the tangible assets they plan to pass to their heirs.

98 Id. 99 See NEV. REV. STAT. ANN. § 597.790 (2011); 765 ILL COMP. STAT. ANN. § 1075/10 (1999); WASH. REV. CODE ANN. §§ 63.60.020, 63.06.040 (2103). 100 See generally Raymond Iryami, Give the Dead Their Day in Court: Implying a Private Cause of Action for Defamation of the Dead from Criminal Libel Statutes, 9 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 1083, 1088 n.33 (1999). 101 See Swidler & Berlin v. United States, 524 U.S. 399 (1988). 102 See R.I. GEN. LAWS § 10-7.1-1 (1974) (the ability to bring a cause of action is limited to a slanderous or libelous statement made within 3 months of the decedent’s death that would have entitled the deceased to maintain an action in slander or libel if he or she had not died). 103 Steve Parrish, Beyond Identity Theft: Why You Need To Protect Your Digital Assets, FORBES.COM, February 10, 2014, available at http://www.forbes.com/sites/steveparrish/. b. A business’s value is not just linked to physical assets, but can also incorporate digital assets, such as mailing addresses, online stores, photographs, bank accounts, payroll systems, timekeeping systems, computer software, business plans, videos, etc.104

c. Power of attorney documents are generally not respected by a financial institution with respect to online bank accounts. This could result in financial losses to the business and damage to creditor relationship because of the inability to pay debts.

d. If a business loses digital information, it can be expensive to retrieve it. The loss can also lead to a loss of goodwill with customers.

e. Electronic documents with trade secrets can be lost as well as other inside information.

C. Step Three – Digital Asset Inventory

1. Discussing with the client the most appropriate method for maintaining an up-to-date inventory of accounts, passwords and login information is critical.

2. Ask the client to prepare a comprehensive inventory.

a. A sample checklist, “Digital Audit,” is set forth at Exhibit B. It is designed to provide a list of passwords and account information for a comprehensive list of digital assets. The template is downloadable from:

http://www.digitalpassing.com/digitalaudit.pdf

b. The inventory should also ask clients to list the answers to security questions used when clients forget passwords.

3. In addition to a written inventory the client should consider creating an electronic list (in a Word or Excel document) which can be accessed with one master password. The physical list should be kept in a secure location such as a safe deposit box.

4. Password services

a. Online tools that are designed to protect and manage passwords. Free and commercial software is available for this purpose and can

104 Roberto Ceniceros, Companies Advised to Protect Critical Digital Assets, 38 BUS. INS. 20, 21 (2004). be kept on the client’s smartphone, computer or on a web-based service. Some services offer encryption software.105

b. Encrypted services:

1) LastPass106

2) 1Password107

3) Dashlane108

4) KeePass109

5) Roboform110

c. Web-based unencrypted services:

1) PasswordBox111

2) SecureSafe Pro112

3) E-Z Safe113

d. Family members and/or executor must have access to master password for the encrypted service to access the list of password data.

5. Hybrid methods

a. Keep an encrypted electronic list of your passwords, online accounts, and digital property plus keeping a separate written instruction sheet describing how to find and access your encrypted electronic list, including the master password. Keep the separate written instruction sheet in a secure location, like a safe deposit box or a home safe.

105 The author does not endorse or sponsor any of the products listed. 106 See https://lastpass.com/how-it-works/. 107 See https://agilebits.com/onepassword. 108 See https://www.dashlane.com/. 109 See http://www.keepass.info/. 110 See http://www.roboform.com/. 111 See https://www.passwordbox.com/. 112 See http://www.securesafepro.com/.. 113 See http://www.e-z-safe.com/. b. Use a Web-based service to both keep your encrypted electronic list and provide a mechanism for designated fiduciaries or family members to access the unencrypted list.

D. Step Four - Secure digital assets

1. Clients should regularly backup any electronically stored data. Especially data that is stored by a service provider.

2. Fiduciaries should only deal with service providers for the purpose of closing or memorializing accounts, while accessing locally stored data and backups for collecting, managing, and distributing digital property.

3. Avoiding the need to access information that is stored remotely by service providers, fiduciaries also avoid the potential problems of federal and state data privacy laws and computer crime laws related to accessing remotely stored information.114

E. Step Five – Include special provisions in the will (see Exhibit C for sample language).

1. Appoint a digital executor where possible

a. Federal government suggests creating a social media will that appoints an online executor; many jurisdictions may not recognize a separate executor to administer digital assets115

b. Executor may need to determine whether some material should be deleted and not distributed to preserve decedent’s privacy; i.e., medical records, adult recreational material.

c. Executor chosen should have skills necessary to deal with digital assets or at a minimum will should provide that executor may engage technology specialist.

2. Executor’s powers and duties clause should grant executor authority to:

a. create an inventory;

b. change passwords;

c. back up data on external media;

114 James D. Lamm, Christina L. Kunz, Damien A. Riehl & Peter John Rademacher, The Digital Death Conundrum: How Federal and State Laws Prevent Fiduciaries from Managing Digital Property, U. MIAMI L. REV, Vol 68:385, 416 (February 2014). 115 See http://blog.usa.gov/post/22261234875/social-media-will. d. consolidate, distribute or destroy content;

e. value the assets for tax purposes;

f. delete secret accounts; and

g. clean up devices.

3. Provide for the distribution of tangible digital property and digital assets

a. Include provisions for abandoning or eliminating digital assets that are worthless.

b. Include provisions to ensure that metadata is deleted along with specific digital assets that the client wants deleted upon death.

4. Include a definition of digital assets that is consistent with federal privacy laws.

5. Include language that expressly authorizes service providers to disclose private information to the Executor. The authorization should clearly state the client’s intention to satisfy the CFAA, SCA and any state privacy laws.

This will provide the service provider with evidence of the client’s “lawful consent” and “authorized access.”

6. Do not include detailed lists of accounts and passwords.

F. Planning during life (see Exhibit C for sample language)

1. Currently, only Delaware, Nevada and Idaho have legislation concerning the administration of digital assets during life but only in the context of a court-appointed guardian. No state has enacted legislation for the appointment of an agent or trustee to access the digital assets.

2. NY Power of Attorney form does not provide the agent access to digital assets. Language may be added to the Modifications section to expressly provide this authority.

3. Must expressly authorize the attorney-in-fact to access the account.

4. Transfer digital assets to a trust

a. Digital Access Protection trust (“DAP trust”) – increasingly becoming a popular tool for digital asset planning.

b. Trustee and all successor trustees should be expressly authorized to have access to the content of the beneficiary’s account. c. Before setting up a DAP, consider whether the service provider will allow a trust to be the account holder and whether the account can be transferred to a trust.

d. Similar language should be included in the trust instrument regarding definitions, powers of the trustee, etc.

G. Utilize succession planning tools provided by service provider

1. Google became the first service provider to implement a solution regarding access to a user’s account upon his or her death or incapacity.116

a. The company introduced a feature called the “Inactive Account Manager,” which can be accessed through the user’s profile page.

b. The Inactive Account Manager will become “activated” after the user’s account is inactive for a period of three, six, nine or twelve months, as determined by the user.117

c. The user can also determine what will happen to his or her data in advance of the account becoming inactive. For instance, the user may elect that the data be deleted or some or all of it may be sent to a specified individual.118

d. Google will notify the user by text or email as the period of inactivity approaches.119

e. Google’s Account Manager is not part of the TOS.

f. In August 2015, Google added a new page in the Support section where the death certificate, letters testamentary, etc. may be uploaded to facilitate review of a request to access the account.120

2. In early 2015, Facebook began to allow account holders to appoint a “legacy contact.”121

116 A user’s Google account provides access to all of Google’s products including Gmail, YouTube and Picasa. 54 See https://www.google.com/settings/account/inactive?hl=en; see also http://support.twitter.com/articles/15362inactive-account-policy#. Twitter also has a very simple inactive account policy for user who do not access their account for 6 months in which they will terminate and delete the account information. 117 See Id.; the term “inactive” is not defined, but one can assume that if the account is not access, it will be deemed inactive. 118 See Id. 119 See Id. 120 See https://support.google.com/accounts/contact/deceased?hl=en. 121 See https://www.facebook.com/settings?tab=security§ion=memorialization&view (website last checked Apr. 28, 2015. a. A legacy contact is someone the account holder can choose to manage his or her account after death. The legacy contact will be able to pin a post on the account holder’s Timeline, respond to new friend requests and update the account holder’s profile picture. The legacy contact will not have the ability to post message as the account holder or see the account holder’s messages.

b. The account holder can also request to have his or her account deleted permanently after the account holder’s death.

c. The account holder can designate a legacy contact by going to Settings, then clicking on Security.

H. Digital Estate Planning Services

1. Online digital estate planning can be a helpful way to manage digital assets. The fiduciary will only have to gain access to one online account to obtain all of the decedent’s digital asset information and wishes.122

2. The service allows users to identify and input all user names and passwords and identify the individuals who will have access to the digital estate when the user dies.

3. Some services provide the ability to direct the elimination and deletion of an account and its contents.

4. Example Digital Estate Planning Services:

a. SecureSafe 123

b. Asset Lock124

c. Planned Departure125

5. Criticisms of Digital Estate Planning Services

a. The area is still relatively new and the longevity of the company offering the service is a concern.

122 Jamie P. Hopkins, Afterlife in the Cloud: Managing a Digital Estate, 5 HASTINGS SCI. & TECH. L.J. 209 (Summer 2013). 123 See http://www.securesafe.com/en/. 124 See http://www.assetlock.com/. 125 See https://www.planneddeparture.com/. b. These services create a large repository of information which makes them a target for online hackers and thieves. They may also be susceptible to virus software.

c. Clients are often concerned about privacy when submitting all access information to a third party account. This may also violate the TOS for many types of accounts which could lead to the service provider closing the account and deleting content.

VII. What To Do When a Client Has Not Planned in Advance A. Consider contacting the service providers to request a copy of the catalogue and/or the contents of the decedent’s or incapacitated person’s valuable or significant accounts.

1. Could avoid the potential problems of attempting to directly access the account itself, which could constitute “unauthorized access” within the scope of the CFAA or state criminal laws.

2. This request could also trigger the provisions of the TOS and the service provider may have the authority to delete the account and its contents.

B. Determine whether there are any pending civil or criminal investigations involving the decedent.126

1. Fiduciaries should not access or tamper with any digital property, so as to maintain complete and accurate copies of all data.

2. If accessing digital property is necessary, fiduciaries should consult with an attorney and a computer forensics expert to prevent altering or inadvertently deleting any digital property.

C. Consider creating copies of all digital property before any other attempts to access the storage device or data, to the extent possible.

D. If you lack information regarding what accounts a decedent or incapacitated person had, the content within those accounts, and the necessary access information, hire a computer forensics experts to attempt to discover this information.127

1. Access the deceased’s computer without authority could be considered hacking which violates federal and state privacy laws.

126 See Lamm, Kunz, Riehl & Rademacher supra Note 114. 127 See id. E. Steps to protect digital assets128

1. Get multiple copies of the death certificate because most authorities will need one for their records.

2. Request the deceased’s credit reports from each of the three credit bureaus.

3. Request that the credit bureaus suppress the deceased’s credit file.

4. Send a copy of the death certificate to all of the deceased’s creditors.

5. Request a benefits statement for review from the Social Security Administration

6. Cancel the deceased’s identification cards including: driver’s license, AAA membership, and health insurance.

7. Securely store all documents that contain the Social Security Number of the deceased.

8. Avoid giving too many details about the deceased in public death announcements

128 Gerry W. Beyer, Identity Theft After Death, Wills Trusts and Estates Prof Blog, April 19, 2010, available at http://lawprofessors.typepad.com/trusts_estates_prof/2010/04/identity-theft-after-death.html. Issue Original UFADAA PEAC Act Revised UFADAA Estate representative’s access to Permitted unless the decedent Not permitted unless a court Not permitted unless the the content of a decedent’s opted out while alive. finds that the decedent decedent consented to electronic communications. consented to disclosure and the disclosure. Custodian may estate indemnifies the custodian. request a court order specifically The request must specifically identifying the account and identify the account. finding consent. Indemnification not required. Estate representative’s access to Permitted unless the decedent Unless the decedent opted out, Permitted unless the decedent other digital assets of a opted out while alive. access to one years’ worth of opted out or the court directs decedent. records permitted with a court otherwise. Custodian may order only if relevant to resolve request a court order specifically fiscal assets of the estate. identifying the account and finding that access is reasonably necessary for estate administration. Conservator’s access to the Permitted if access ordered by Not addressed. Custodian need not disclose content of a protected person’s the court. contents without the express electronic communications. consent of the protected person, but may suspend or terminate an account for good cause if requested by the conservator. Conservator’s access to other Permitted if access ordered by Not addressed. Permitted if authorized by the digital assets of a protected the court. conservatorship order. Custodian person. may require specific identification of the account and evidence linking the account to the protected person. Agent’s access to the content of a Permitted if expressly authorized Not addressed. Permitted if expressly authorized principal’s electronic communic- by the principal. by the principal. Custodian may ations. require specific identification of the account and evidence linking the account to the principal. Issue Original UFADAA PEAC Act Revised UFADAA Agent’s access to other digital Permitted under a grant of Not addressed. Permitted under a grant of assets. general or specific authority. general or specific authority. Custodian may require specific identification of the account and evidence linking the account to the principal. Trustee’s access to the contents Permitted unless prohibited by Not addressed. Permitted when trustee is the of electronic communications of a the user, trust, or court. original user. Also permitted trust account. when the trustee is not the original user if authorized by the trust. Custodian may require specific identification of the account and evidence linking the account to the trust. Trustee’s access to other digital Permitted unless prohibited by Not addressed. Permitted unless prohibited by assets of the trust. the user, trust, or court. the user, trust, or court. Custodian may require specific identification of the account and evidence linking the account to the trust. Issue Original UFADAA PEAC Act Revised UFADAA Effect of boilerplate term-of- A blanket prohibition on fiduciary Not specifically addressed, but Three tiered approach: service prohibiting fiduciary access is void as against public terms-of-service arguably 1. A user’s direction using access. policy. enforceable by the reference to an online tool prevails “other applicable law” (i.e. over an offline direction contract law) in Sec. 3(c). and over the terms-of- service if the direction can be modified or deleted at all times. 2. A user’s direction in a will, trust, power of attorney, or other record prevails over the boilerplate terms-of- service. 3. If a user provides no direction, the terms-of- service control, or other law controls if the terms- of-service are silent on fiduciary access. Effect of other terms-of-service. Not addressed. Recipient has no greater rights Unless they conflict with a user’s than the user. direction, terms-of-service are preserved and the fiduciary has no greater rights than the user. Issue Original UFADAA PEAC Act Revised UFADAA Procedure for disclosing digital Not addressed, but use of the Provider not required to allow a The custodian has three options assets. term “access” throughout the act requesting party to assume for disclosing digital assets: arguably contemplates the control of a deceased user’s 1. Allow the requestor to fiduciary logging on to the user’s account. access the user’s account. account. 2. Allow the requestor to partially access the user’s account if sufficient to perform the necessary tasks. 3. Provide the requestor with a “data dump” of all digital assets held in the account. Administrative fees. Not addressed. Not addressed. A custodian may assess a reasonable administrative charge for the cost of disclosing a user’s digital assets. Deleted assets. Not addressed. Deleted assets need not be Deleted assets need not be disclosed. disclosed. Unduly burdensome requests. Not addressed. Court shall quash an unduly A request for some, but not all, of burdensome order. a user’s digital assets need not be fulfilled if segregation is unduly burdensome. Instead, either party may petition the court for further instructions. Fiduciary duties. Incorporated by a generic Not addressed. Expressly incorporated. reference to “other law.” Issue Original UFADAA PEAC Act Revised UFADAA Account termination. Not addressed. Not addressed. If termination would not violate a fiduciary duty, the fiduciary may request account termination rather than disclosure of assets. A custodian may require specific identification of the account and evidence linking the account to the user. Joint accounts. Not addressed. Custodian need not disclose if Custodian need not disclose if aware of any lawful access to the aware of any lawful access to the account following the death of account after receipt of the the user. disclosure request. Timely compliance. Required within [60] days, or Not addressed. Required within [60] days, or fiduciary may request an order of fiduciary may request an order of compliance. compliance. The order must contain a finding that disclosure does not violate 18 U.S.C. § 2702. Custodian immunity. Custodian is immune from Custodian not liable for Custodian is immune from liability for an act or omission compliance in good faith with a liability for an act or omission done in good faith compliance court order issued pursuant to done in good faith compliance with the act. the act. with the act.

Exhibit C

Power of Attorney. While the principal is alive it could be beneficial to have someone able to handle digital assets and accounts if the principal consents. A power of attorney could permit the attorney-in-fact to handle the digital assets of his principal. Of course, it is unclear whether the account holder or host will recognize this power of an attorney-in-fact in a power of attorney. But at least putting something on the face of a durable power of attorney increases the chance of someone accepting it and thus allowing the attorney-in-fact to act.

Sample Language:

Digital Devices, Digital Assets and Digital Accounts. My agent shall have the power to access, use and take control of my digital devices, including, but not limited to, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smart phones, and any similar digital device (including any similar devises that may exist as technology develops). My agent shall have the power to access, modify, delete, control, transfer and otherwise deal with, my digital assets, including but not limited to e-mails, documents, images, audio, video, software licenses, domain registrations, and similar digital files (including any other digital assets which may exist as technology develops), regardless of the ownership of the physical device upon which the digital asset is stored. My agent shall have the power to access, modify, delete, control, transfer and otherwise deal with, my digital accounts, including but is not limited to e-mail accounts, social network accounts, social media accounts, file sharing accounts, financial management accounts, domain registration accounts, domain name service accounts, web hosting accounts, tax preparation service accounts, online stores, affiliate programs, other online accounts which currently exist or may exist as technology develops.

Will. The will also should provide for transferring digital assets if those assets have particular value or significance. It should say how those digital assets pass which may require separating them from the tangible personal property. For example, one beneficiary may get the decedent’s computer, but the decedent could direct that other beneficiaries (e.g., all children) get copies (digital or print) of the family photographs that are stored on that computer.

Planners may want to consider excluding digital storage devices and related hardware and software from the provisions in documents that direct the disposition of tangible personal property. Alternatively, planners should include provisions that allow Executors to access such devices in order to harvest (and even delete) information about intangible assets before such devices are delivered to beneficiaries entitled to receive tangible personal property the Will could provide specific directions. For example, a writer or celebrity might want his or her digital content, tweets, blogs, photographs, published or at least preserved and the Will might say by whom and who gets the assets. Also the Will should give the Executor the power to handle (access, change, control, delete, etc.) specified digital assets and accounts. While general powers under state law arguably provide such powers, having those powers expressly stated in a Will may help the Executor to act, particularly while the law continues to be so disjointed.

Finally, the Executor may lack the skill set to work with digital assets and accounts in which case the Will might permit someone else to work with the digital assets and accounts in conjunction with the Executor, or at least make clear that the Executor can hire needed help.

Sample Language

Bequests:

Personal Effects and Digital Assets. I give all of my household furniture and furnishings, automobiles, jewelry, personal effects and all other articles of household or personal use or ornament, my digital devices and digital assets (but not digital accounts) and all accrued rewards program interests (airline, hotel or otherwise), to my wife if she survives me. My "digital devices" shall include, but not be limited to, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smart phones, and any similar digital device. My "digital assets" shall include but not be limited to, e-mails, documents, images, audio, video, software licenses, domain registrations, and similar digital files, regardless of the ownership of the physical device upon which the digital asset is stored. My "digital accounts" shall include but not be limited to financial management accounts, domain registration accounts, domain name service accounts, web hosting accounts, tax preparation service accounts, online stores and affiliate programs, social network accounts, and social media accounts.

Memorandum. I may leave a letter or memorandum (which is not to be a part of this Will) expressing my wishes with respect to the disposition of certain items of my digital devices, digital assets and digital accounts, and I request, but do not require, that my wishes as set forth in such letter or memorandum be observed.

Executor Powers:

Powers and Discretions. My Executor shall have the following powers and discretions, together with any others that may be granted by law, to be exercised in my Executor's discretion without court order:

Digital Assets. My Executor shall have the power to access, handle, distribute and dispose of my digital assets.

Digital Devices, Digital Assets and Digital Accounts. My Executor shall have the power to access, use and take control of my digital devices, including, but not limited to, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smart phones, and any similar digital device. My Executor shall have the power to access, modify, delete, control, transfer and otherwise deal with, my digital assets, including but not limited to e-mails, documents, images, audio, video, software licenses, domain registrations, and similar digital files, regardless of the ownership of the physical device upon which the digital asset is stored. My Executor shall have the power to access, modify, delete, control, transfer and otherwise deal with, my digital accounts, including but not limited to e-mail accounts, social network accounts, social media accounts, file sharing accounts, financial management accounts, domain registration accounts, domain name service accounts, web hosting accounts, tax preparation service accounts, online stores, affiliate programs, and other online accounts.

Trusts. As with other assets, an individual may desire to transfer his or her digital assets to a living trust, or to have his or her living trust be the owner from inception. The Trust may provide for privacy, disability management, probate avoidance, etc. If the Trust is named as the “owner” of the digital asset, since many digital assets take the form of licenses that expire at death, as trusts do not die, the terms of service issues that are triggered by death may be avoided. However, it is uncertain if Silicon Valley will accept trust ownership and if they will understand that when the settlor dies the trust goes on, with a successor trustee.

Sample Language

Trustee Powers:

Powers of Trustee. In addition to any powers conferred by law upon trustees, the Trustee shall have the following powers and discretions in the administration, investment and distribution of any trust created hereunder:

Digital Assets. The Trustee shall have the power to access, handle, distribute and dispose of any digital assets that comprise a portion of the trust estate.

Digital Devices, Digital Assets and Digital Accounts. The Trustee shall have the power to access, use and take control of digital devices that comprise a portion of the trust estate, including, but not limited to, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smart phones, and any similar digital device. The Trustee shall have the power to access, modify, delete, control, transfer and otherwise deal with, digital assets that comprise a portion of the trust estate, including but not limited to e-mails, documents, images, audio, video, software licenses, domain registrations, and similar digital files, regardless of the ownership of the physical device upon which the digital asset is stored. The Trustee shall have the power to access, modify, delete, control, transfer and otherwise deal with, any digital accounts that comprise a portion of the trust estate, including but is not limited to e-mail accounts, social network accounts, social media accounts, file sharing accounts, financial management accounts, domain registration accounts, domain name service accounts, web hosting accounts, tax preparation service accounts, online stores, affiliate programs, and other online accounts. LIFETIME GIFTS AND TRUSTS FOR MINORS

Susan Porter, Esq.

Fiduciary Consultant New York, NY

and

Magdalen Gaynor, Esq.

Law Offices of Magdalen Gaynor White Plains, NY

Revised by

Susan Porter, Esq. White Plains, NY

§ ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION [7.0] I. GIFTS Donors make gifts for both tax and nontax reasons. Usually, lifetime gifts are contemplated when there is significant family wealth. A gift motivated by tax reasons is given to reduce the size of the donor’s subsequent estate. Such gifts are discussed in this first section. Nontax reasons for gifts vary from securing support of the donee to providing the donee experience in handling money. These gifts are the subject of the remaining sections in this chapter.

[7.1] A. Planning Issues

A donor who decides to undertake a gift-giving plan must decide how much total value to give. Because the do- nor should not transfer more property than he or she can afford to give up, the total amount to be transferred must periodically be reconsidered and adapted to changing circumstances.

A generous donor often is one who does not have vast wealth; thus, the practitioner must review the client’s gift-giving policy. The often multiple objectives of the donor’s plan will shape the donor’s selection of which assets to give.

In general, if the goal is to maximize capital appreciation for the donee, the donor will transfer high-growth (both liquid and illiquid) property. If the goal is to provide the donee with supplemental income, then cash (which can be converted into the most appropriate investment vehicle to meet the donee’s objectives) or high-income– yielding property will be an appropriate gift. The selection of gift property with a higher estate tax value than gift tax value is often desirable; life insurance is a good example of this kind of property.

Federal and state tax considerations, including basis and valuation determinations, are also factors in any donor’s gift plan. Each of these issues is addressed below.

[7.2] B. Tax Considerations

[7.3] 1. Federal Gift and Estate Tax

In general, giving assets away in life does not save taxes at death because both lifetime transfers and “death- time” transfers are subject to federal gift and estate taxes. Until 2004, the tax was determined by a unified tax rate structure that applied to federal gift and estate taxes. For all gifts made after January 1, 2004, and before January 1, 2011, the gift exemption amount was frozen at $1 million, and the top gift tax rate was scheduled to decrease incrementally through 2009 until it “bottomed out” at 35% in 2010.1 The unified rate structure continued to apply to federal estate taxes. As of January 1, 2011, the unified tax structure was revised using $5 million as the exemption for gift or estate tax. In 2013, the $5 million exclusion was made permanent and to be adjusted for inflation. The amount for 2015 is $5,430,000 and for 2016 is $5,450,0002

Under the unified tax system, the taxable amount of all gifts (i.e., the amount of gifts above the applicable annual exclusions and the marital and charitable deductions) made after 1976 is added back to the actual taxable estate for purposes of determining the estate tax to be paid. To determine the final estate tax, the unified rate structure is applied to the cumulative total of lifetime and death-time transfers. A tentative tax is computed under I.R.C. § 2001(c), and a credit is allowed under I.R.C. § 2505(b).2 Credit is also allowed for any gift tax payable on the gifts (at the rates in effect at the donor’s death) under I.R.C. § 2001(b).3

1 Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, 115 Stat. 38 (EGTRRA) (codified in scattered sections of U.S.C. tit. 26). 2 I.R.C. § 2010. All IRC references are to the Internal Revenue Code of 1986 as amended and the regulations thereunder. 3 I.R.C. §2504.

7-2 LIFETIME GIFTS AND TRUSTS FOR MINORS § Gift tax paid on transfers made within three years of death will be included in the gross estate.4 This aspect of the federal gift tax, commonly called the Section 2035 gross-up rule, may affect the timing of gifts.

[7.4] 2. Generation-Skipping Transfer Tax

In addition to taxes imposed under the unified transfer tax system, the generation-skipping transfer (GST) tax5 will be imposed on all transfers to a “skip person,”6 subject to the transferor’s exemption,7 which the transferor (or executor) may allocate to lifetime and death-time transfers. Beginning in 1999, the exemption has increased annually to reflect a cost-of-living adjustment. The GST tax exemption is $5,430,000 in 2015 and $5,450,000 in 2016. New York State does not impose a New York generation skipping tax.

[7.5] 3. Local Gift Taxes

State tax considerations must also be taken into account, particularly in Connecticut which imposes a gift tax. Donors in Connecticut should consider the effect of such a tax before making gifts. New York eliminated its gift tax as of January 1, 2000. However, in 2014 New York enacted legislation providing that taxable gifts made within three years of death will be included in the decedent’s estate for purposes of computing the New York estate tax. Gifts are only included if the decedent made them between April 1, 2014 and January 1, 2019 while he or she was a resident of New York.9

[7.6] 4. Income Tax Considerations

Before implementing a gift-giving policy, a donor also should consider the effect of gift transfers on his or her income tax. Such potential effects include (1) the donor’s loss of income generated by the transferred property (e.g., rents, royalties, interest or dividends); (2) the compression of the income tax rate schedule for trusts under I.R.C. § 1(e), which virtually eliminates the income tax savings previously possible through income shifting; and (3) the kiddie tax, which taxes net unearned income at the parents’ marginal rate in certain circumstances.8

There are three events that trigger the kiddie tax. They are:

(1) Children under 18 whose unearned income exceeds the amount allowed by I.R.C. Section 1(g)(4)(A)(ii) and do not file joint returns.

(2) Children who are 18 whose unearned income exceeds that amount allowed by I.R.C. Section 1(g)(4)(A)(ii), do not file joint returns and have earned income that is less than one-half of the amount of his or her support.

3 Chapter 2 contains an excellent discussion of how the federal estate tax is calculated, as well as the changes to the unified rate structure.

4 I.R.C. § 2035(c).

5 See I.R.C. §§ 2601–2664. The GST is calculated as a flat tax at the highest estate tax rate, which for 2011 and 2012 is 35%.

6 See I.R.C. § 2613(a).

7 See I.R.C. §§ 2503, 2611.

9 It appears that this “add back” includes the value of any taxable gifts made by a NY resident of real property or tangible personal property located outside of New York. 8 I.R.C. § 1(g).

7-3 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION (3) Children ages 19 through 23 whose unearned income exceeds the amount allowed by I.R.C. Section 1(g)(4)(A)(ii), do not file joint returns, have earned income that is less than one-half of the amount of his or her support and are full time students for at least five months of a year.

The net effect is to obtain the benefit of the child’s lower tax rate only for unearned income over the standard deduction amount ($1,050 in 2015 and 2016) and below the threshold amount ($2,100 in 2015 and 2016). All unearned income above the threshold amount is taxed at the parent’s higher rate.

Unearned income does not include salary or wages earned by the child. Such is not subject to the kiddie tax rules.

[7.7] 5. Tax Cost Basis

A property’s tax cost basis may affect when and to whom the property is transferred. For property gifted while the donor is alive, the donee of such inter vivos gift assumes the donor’s adjusted basis in the property (called the carryover basis).9 The donee’s basis is also adjusted for gift tax paid in accordance with the appreciation in the property. If the same property is transferred upon the donor’s death, however, the tax cost basis is “stepped up” to the fair market value of the asset on the date of death or the alternate valuation date (called the stepped-up basis) under I.R.C. § 1014.

PRACTICE TIPS The difference in basis can have significant consequences, particularly when the donee sells the gifted asset at a loss. In that situation, the donee’s basis would equal the lesser of the do- nor’s basis or the fair market value of the property on the date of the gift.10 Thus, practitioners typically should advise clients to retain until death any assets that have appreciated greatly and to gift other assets.

Alternatively, because of the changes in the capital gains rate, a donor could consider gifting highly appreciated assets to younger donees (over the age of 18) who are in the lowest income tax bracket. Children who are in a lower tax bracket than that of their parents are good recipients of gifts of low-basis assets if the kiddie tax does not apply.11

[7.8] 6. Value of the Gift

The amount of a gift is the value of the property on the date of the gift.12 Actual market sales will be used to value stocks and bonds traded on public exchanges. Determining the fair market value of assets not publicly traded (e.g., closely held stock and partnership interests) requires application of the willing buyer/willing seller test—that is, the asset’s fair market value is the price at which the property would sell “between a willing buyer and a willing seller, neither [being] under any compulsion to buy or to sell, and both having reasonable knowledge of [all] relevant facts.”13

9 See I.R.C. § 1015(a).

10 Id.

11 The incentive to shift income from the high-paying taxpayer to a child (or grandchild) is curtailed if the kiddie tax rule (I.R.C. § 1(g)) applies. Under § 1(g), the unearned income of a child under age 19, or ages 19 to 24 if a full-time student, is taxed at the parents’ rate if it exceeds twice the minimum standard deduction amount allowed to dependents ($ 2,100 in 2015 and 2016).

12 I.R.C. § 2512.

13 Treas. Reg. § 25.2512-1. 7-4 LIFETIME GIFTS AND TRUSTS FOR MINORS § Blockage, minority interest and lack of marketability discounts are other determinants for valuing property.14 Thus, for example, use of the annual exclusion or the unified credit for a gift of stock that represents a minority interest in a closely held corporation will protect from transfer tax a larger number of shares transferred during life than at death if they will then be part of a control block. In addition, a discount is available for a gift of an undivided interest in real property.15

As a result of I.R.C. § 2035(d), which negates the three-year contemplation-of-death rule for most transfers, the valuation benefit resulting from the gift of either a minority interest in a closely held corporation or an undivided interest in real property may be available even when the donor dies shortly after making the gift. Discounts must be substantiated by an appraisal or a valuation conducted by an independent entity. Values for annuities, life estates and remainder interests are determined in accordance with valuation tables prescribed by the secretary of the Treasury Department.

All gifts must be reported on the U.S. Gift Tax Return, Form 709, and the tax, if any, is payable by the due date of the donors’ federal income tax return—April 15 of the year following the calendar year in which the gifts were made (unless extended).

Because of the mechanics of the unified estate and gift taxes, the IRS could, in effect, redetermine the value of a gift upon audit of the donor’s federal estate tax return. For gifts made prior to August 6, 1997, the value of the gift may be adjusted at any time, even if the time within which a gift tax may be assessed has expired under I.R.C. § 6501.16 For gifts made after August 5, 1997, which are adequately disclosed on the gift tax return and for which the period for assessment of gift tax has expired, the IRS is foreclosed from adjusting the value of the gift under I.R.C. § 2504(c) (for purposes of determining gift tax liability) and § 2001(f) (for purposes of determining estate tax liability).17

[7.9] 7. Tax Avoidance/Minimization

Before making a gift, a donor will need to consider the tax implications of such a gift (unless death occurs within three years of the gift or I.R.C. § 2036, 2037, 2038 or 2042 applies to the gift transfer). A donor who wishes to minimize or avoid a sizable estate, gift and GST tax burden has numerous options, detailed below in §§7.10 through 7.19 , including

• annual exclusion “tax-free” gifts,18

• spousal consent to “gift splitting,”19

• direct payments to schools and medical providers,20 and

14 See Rev. Rul. 93-12, 1993-1 C.B. 202.

15 In LeFrak v. Comm’r, 66 T.C.M. (CCH) 1297 (1993), for example, the discount was 30%.

16 See Treas. Reg. §§ 20.2001-1(a), 25.2504-2(a).

17 Rev. Proc. 00-34, at 186, provides guidance on what information is required under I.R.C. § 6501(c)(9) to adequately disclose a gift.

18 I.R.C. § 2503.

19 I.R.C. § 2513.

7-5 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION • use of 529 plans for college tuition.

The donor also should consider how his or her estate might be reduced with regard to post-transfer increases in the value of the gift property (including income therefrom that would otherwise have been retained).

[7.10] C. Gifts That Do Not Generate Tax

Certain gifts can be made during life that are free from gift taxes, which obviously provide the client with several potentially valuable planning techniques. Each is discussed below.

[7.11] 1. Annual Exclusion Gifts

The gift tax annual exclusion, set forth in I.R.C. § 2503(b), allows a donor to exclude from his or her adjusted taxable gifts the first $10,000 ($14,000 for 2015 and 2016) of any present-interest gift made to any person during the calendar year. Thus, the excluded amount is not added back to the donor’s taxable estate for purposes of computing the estate tax. To the extent such a gift is treated as nontaxable under I.R.C. § 2642(c)(3), it will also avoid the gift tax and GST tax.

This annual $10,000 gift tax exclusion ($20,000 for split gifts, described below) is indexed for inflation21 once the cost-of-living adjustment equals or exceeds 10%.22 The first increase occurred in 2002.In 2013, the amount increased to $14,000 ($28,000 for split gifts) and remains at that amount for 2015 and 2016.

The gift tax exclusion applies only to present-interest gifts.23 An outright gift is a present-interest gift. A gift in trust has two components: an income interest and a remainder interest. The remainder interest is a future interest and does not qualify for application of the annual exclusion. The income interest portion of a gift in trust may qualify as a present interest. A component of the present-interest requirement is that the income must be payable in all events.24

A life income interest or an income interest for a term certain is a present interest, as the beneficiary has an unrestricted current right to income that is able to be determined. However, if the donor makes a gift to a trust and the trustee has discretion to distribute or to accumulate income, or the trustee has discretion to allocate income among a class of beneficiaries, the income interest is a future interest.25 Gifts of a future interest do not make use of the annual exclusion and thus reduce the donor’s unified credit. Therefore, the planner should ensure that gifts constitute a present interest for tax purposes.

If the donor is married, each spouse may use the annual exclusion. One spouse may provide all the property for the gift, provided the nondonor spouse agrees to treat the transfer as if made one-half by each spouse. This is

20 I.R.C. § 2503(e).

21 Taxpayer Relief Act of 1997, Pub. L. No. 10534, 111 Stat. 788 (TRA) (codified as amended in scattered sections of U.S.C. tit. 26).

22 The cost-of-living adjustment uses 1997 as its base year. I.R.C. § 2503(b).

23 Treas. Reg. § 25.2503-3(a).

24 Treas. Reg. § 25.2503-3(b).

25 See Treas. Reg. § 25.2503-3(c) ex. 1, 3.

7-6 LIFETIME GIFTS AND TRUSTS FOR MINORS § known as a split gift.26 The election to split the gift is made on IRS Form 709 (U.S. Gift Tax Return), and the return must be timely filed.

The annual exclusion is not cumulative. If a donor transfers less than $14,000 (or $28,000 if the donor is married) to a donee in a year, the balance is lost and not carried forward to the next calendar year. For donors who can afford to make such gifts, a valuable exclusion is wasted if not fully used each year.

[7.12] 2. Education and Medical Expense Gifts

In addition to the $14,000 annual exclusion, amounts paid on behalf of a donee for tuition at an educational institution or for payment to a provider for medical care for that individual will not be treated as a gift for gift tax purposes; thus, it will not be treated as an adjusted taxable gift for estate tax purposes.27 Similarly, such direct tuition or medical expense payments will not be treated as a generation-skipping transfer when the payment is made for a “skip person.”28 The payments must be made directly to the educational institution or the provider of medical care to qualify for the exclusion.29

These gifts are valuable because they are not limited to $14,000 per donee. With regard to education gifts, however, the donor must pay tuition only. Payments for educationally related expenses such as room, board, books, travel and tutoring are not covered by the exclusion.30 The educational institution must be an organization that “normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.”31

Medical care payments exclude medical expenses for which the donee is reimbursed by medical insurance,32 but premium payments for medical insurance on behalf of the donee are qualified payments.

Any payments made do not reduce a donor’s annual exclusion amount. They are free of any gift tax.

[7.13] 3. College Savings Plans

[7.14] a. Overview

The Small Business Job Protection Act of 199633 introduced qualified tuition programs in I.R.C. § 529. The programs are commonly known as 529 plans. Plan features are controlled by the state in which the plan is located

26 I.R.C. § 2513.

27 I.R.C. § 2503(e).

28 See I.R.C. § 2611(b)(1).

29 Treas. Reg. § 25.2503-6(b); see also Treas. Reg. § 25.2503-6(c) ex. 1–4. Under IRC § 2503 (e) prepayments of multiple years of the tuition are net gifts.

30 See Treas. Reg. § 25.2503-6(b)(2).

31 Id.

32 Treas. Reg. § 25.2503-6(b)(3).

33 Pub. L. No. 104-188, 110 Stat. 1755 (codified in scattered sections of U.S.C. tit. 26).

7-7 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION and include local tax treatment of funds contributed and withdrawn. EGTRRA made changes to the program that make it an attractive part of estate tax savings plans for minors.

There are two types of plans.34 The first is the prepaid tuition plan. It is for a designated beneficiary. This plan, which existed before 1996, is a defined benefit plan and locks in current tuition rates at an in-state institution. The preset tuition purchased is translated into units that are then redeemable for a percentage of future tuition and fees. Not all states offer a prepaid tuition plan contract. Some states impose a redemption fee or penalty if the student uses the credits for an out-of-state or private college.

A variation on the state prepaid plan was authorized by EGTRRA. It permits private institutions of post- secondary learning to establish qualified tuition programs to compete with programs sponsored by the state. The institutions may offer only prepaid plans, not savings plans, as described below. Many colleges have agreed to sponsor such a plan. Approximately 270 private colleges are part of the consortium which operated the plan. Thus, the Independent 529 Plan is offered through the not-for-profit Tuition Plan Consortium LLC.35

Contributions into this type of 529 plan purchase tuition certificates that can be used at any participating college. Colleges in this plan must offer a tuition discount to the student, which can be significant because most state prepaid plans now charge a premium to lock in current tuition rates for future years. On the other hand, if the student chooses to attend a school outside the plan, the investor can get his or her money back but with a small annual return.

The second type of 529 plan is the college savings plan. It is a defined contribution plan that allows contributions to grow tax-deferred and contains an element of investment risk. This type is more popular and provides more flexibility for a beneficiary’s educational needs. One of the most attractive benefits of this type of plan is the tax treatment. Funds placed in the savings plan grow tax-free, much like those in an individual retirement account. If withdrawals are used to pay for educational expenses, they are tax-free for federal income tax purposes. Some states also exempt account earnings from state income tax. Another advantage is that the college savings plan more broadly defines educational expenses. In addition to tuition, most state plans allow funds to be used for such expenses as on-campus room and board, fees, books and supplies.36

Typically, a parent or grandparent creates a 529 account for the benefit of a child. One of the most appealing aspects of the plan is that the contributor, not the beneficiary, is the account owner and can control the distribution of assets. The plan has no age or relationship restrictions. Presently, individuals can use these plans to save for their own education.

A transfer to a savings plan for another is a completed gift for tax purposes and treated as a gift of present interest. It is not included in the donor’s estate even if the donor is the account owner—with one exception, as discussed below in § §7.16.

The contribution is counted as using the annual exclusion amount available for the designated beneficiary of the account. It is not in addition to the annual exclusion. Contributing to a savings plan does not qualify as a direct payment of an educational expense.37

34 For more information about the different plans, visit these websites: www.savingforcollege.com, www.independent529plan.org and www.nysaves..com.

35 More information on the Independent 529 Plan is available at www.privatecollege529.com.

36 Many of the benefits of 529 plans, such as tax-free distribution for educational expenses, were included in EGTRRA. The benefits of EGTRRA were to sunset after December 31, 2010, unless Congress took action to renew the provisions. The benefits were made permanent by The American Taxpay- er Relief Act of 2012, which was passed in January 2013.

37 I.R.C. § 2503(e). 7-8 LIFETIME GIFTS AND TRUSTS FOR MINORS § Although a contribution is not tax-deductible for federal income tax purposes, many states offer an income tax deduction, credit or subtraction for a portion of the contributions. At this writing, 34 states and the District of Co- lumbia offer such deductions, some of which have no limit on the amount of the annual deduction. A New York State resident can deduct up to $5,000 ($10,000 if married) on his or her New York State income tax return for contributions to the account if it is a New York plan. The benefit also extends to nonresidents who work in New York and file returns in New York.

Section 529 plans are sponsored and administered by individual states, most of which contract with and out- source to various financial institutions to administer the plan and/or handle investment management. All 50 states have their own requirements for operating the plans. The state income tax deduction is only one factor in determining where to open a plan. The other factors to consider are plan performance, administrative fees and investment strategy.

[7.15] b. Investments

Unlike a Uniform Transfers to Minors Act38 account owner, the account owner of a 529 plan has a limited ability to direct how the account is invested.39 The investments cannot be self-directed. Each state has different criteria that govern the selection and performance of various investment funds. Investment options are defined by the state that sponsors the program. The plans offer various investment strategies, from aggressive growth to an age- based strategy.

New York’s 529 College Savings Program’s program manager is Ascensus College Savings.The investment manager and account service provider for its existing plan is The Vanguard Group.

There are 16 investment options: three age-based options (conservative, moderate and aggressive) and 13 individual portfolios (which invest in stock funds, bond funds and a short-term reserve account, each managed by Vanguard).

Information can be found on nysaves.com.

The law allows the account owner to change investment strategy within the account without penalty once during a calendar year or in conjunction with a change of designated beneficiary on the account. In addition, most states allow the account owner to roll over the account to another plan—limited to one rollover per beneficiary within a 12-month period. Such rollover is not treated as a nonqualified distribution.40 If a second account is rolled over that has the same beneficiary and the rollover occurs within 12 months of the first, such rollover is treated as a nonqualified distribution.

[7.16] c. Contributions

Only cash can be used to fund the account.41 The law contains a special exception that allows the donor to place more than the annual exclusion amount ($14,000 in 2015 and 2016) in one calendar year without incurring the gift tax. A person can donate up to $70,000 (or more if splitting gifts with his or her spouse) in one year to one ac-

38 1996 N.Y. Laws ch. 304, codified at N.Y. Estates, Powers & Trusts Law 7-6.1–7-6.26 (EPTL); see also infra § 7.29.

39 I.R.C. § 529(b)(4).

40 I.R.C. § 529(c)(3)(C).

41 I.R.C. § 529(b)(2).

7-9 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION count and prorate the contribution over a five-year period.42 The donor is treated as having made five annual gifts of the exclusion amount. This exception permits a donor to frontload the account and have it grow tax-free over a longer period of time. The election is made on Form 709 for the year in which the excess contribution is made.

If the account owner dies before the five-year period ends, the portion of the contribution allocable to calendar years beginning after the date of death is included in the gross estate. To illustrate, if a donor contributes $70,000 in year one and dies in year three, the gift amount attributable to years four and five ($28,000) will be brought back into the donor’s taxable estate.

If the donor dies before the five-year period ends and less than five years of annual exclusion is contributed in one year, the amount that should be brought back into the taxable estate is more ambiguous. Many commentators had noted that IRS Proposed Regulation 1.5295(d)(2) was unclear. Most interpreted “portion of the contribution allocable to calendar years beginning after the date of death”43 to mean 20% per year spread over five years, and not $14,000 per year. For example, if $40,000 is given in year one and the donor dies in year two, 60% of the gift ($24,000) is brought back.

[7.17] d. Penalties

The donor can remain the account owner and withdraw funds for nonqualified educational expenses. If the account owner exercises the withdrawal right, he or she is subject to a federal 10% penalty on the portion that represents earnings, in addition to federal income tax. Some states impose additional penalties and include the withdrawn funds in the account owner’s taxable income.

Nonqualified distributions are federally taxed under annual rules. In general, the earnings portion of the distribution is taxed as ordinary income.

[7.18] e. Change of Beneficiaries

An account owner may change the designated beneficiary without tax consequences in certain circumstances. The new beneficiary must be a member of the family of the prior beneficiary and from the same generation as the beneficiary. If the new beneficiary does not meet these requirements, the change will have income tax consequences. Acceptable members of the family include siblings, parents, children, children of a brother or sister, aunt or un- cle..44

If the new beneficiary is a generation below the prior beneficiary, the prior beneficiary is deemed to have made a gift, and GST consequences can occur.

The ability to change beneficiaries offers tax-free flexibility in the event the current beneficiary does not attend college or dies. These rules also apply if the beneficiary becomes disabled and cannot pursue higher education. If the beneficiary does not need funds for college, withdrawals by the account owner that represent the earnings in the account are subject to federal (and possibly state) income tax and a federal penalty of 10%. Upon the death of the beneficiary, the account owner can close the account and receive the account balance without any penalty. The earnings will be included as ordinary income in federal income tax. Whether such earnings are considered income for state income tax purposes depends on the state.

42 I.R.C. § 529(c)(2)(B).

43 63 Fed. Reg. 45019-01, 45032.

44 See I.R.C. §§529(e)(2) and 152 (d)(2) for a list of all the eligible beneficiaries..

7-10 LIFETIME GIFTS AND TRUSTS FOR MINORS § [7.19] f. Successor Owners

Designation of a successor account owner is crucial, and most plan applications request such information. Alt- hough the account is not included in the account owner’s estate for federal and state tax purposes, it may become part of the probate estate absent designation of a successor for the account. Without a designated successor, the account could pass to the residuary estate beneficiary of the deceased account owner as a successor in interest, who could then liquidate the account.

[7.20] II. TRUSTS The donor must decide whether to make outright gifts or to create an irrevocable inter vivos trust.

[7.21] A. Why Use a Trust?

Typically, a grantor creates a trust and funds it with income-producing assets that a trustee manages. Income is payable to the beneficiary for a term of years or for life; and, at the end of the term or at the beneficiary’s death, the trust assets pass to whomever is designated in the trust (i.e., the remainderman).

Common reasons for creating an irrevocable trust include to (1) manage investments; (2) shift income (including capital gain) to beneficiaries in a lower tax bracket, thereby removing future appreciation from the grantor’s estate; (3) protect beneficiaries from creditors by using a spendthrift clause;45 and (4) keep property out of a beneficiary’s taxable estate to reduce the estate’s probate costs and death taxes.

Irrevocable trusts also give the trustee and beneficiaries flexibility to achieve objectives through discretionary clauses. Discretionary powers may be given to the trustee to sprinkle, apply or accumulate income or principal or both, either in the trustee’s sole discretion or within stated parameters in the trust instrument, such as payments for support and maintenance, education, medical expenses, comfort and welfare, and emergencies.46

Discretionary powers that may be given to the beneficiary include (1) the right to withdraw corpus, which right can be unlimited if subject to an ascertainable standard; (2) the noncumulative right to make annual withdrawals up to the greater of $5,000 or 5% of the value of the trust assets; and (3) the power to appoint corpus during lifetime or after death.

[7.22] B. Powers of the Trustee

More than 21 administrative powers are incorporated automatically in any trust instrument governed by New York law, subject to limitations imposed by the trust instrument.47 In addition, trustees are governed by the prudent investor rule for investments, subject to the investment provisions in the trust instrument.48

The trustee could be granted certain powers that are not contained in the statutes. Other powers should be ex- panded, including the following:

45 New York trusts are automatically spendthrift as to the income interest. See EPTL 7-1.5(a)(1).

46 None of the latter three provisions constitutes an ascertainable standard—a term defined in I.R.C. §§ 2041(b) and 2514(c). Consequently, a trust beneficiary’s ability to withdraw corpus should be limited to health, education, maintenance and support to avoid adverse tax consequences.

47 EPTL 11-1.1(b).

48 EPTL 11-2.3.

7-11 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION • powers of investment to include special assets that are speculative, non–income-producing or underpro- ductive

• power to borrow and loan

• power to improve real property and to lease real property for periods that exceed statutory limitations

• power reserved to the grantor to exercise rights over insurance policies of which the trustee is the owner

• power to allocate receipts and disbursements between income and principal, notwithstanding an incon- sistent provision under state law

[7.23] C. Executing and Funding the Trust

[7.24] 1. Identify Property Being Transferred

The trust instrument should identify the property being transferred by the grantor to the trustee, either by a schedule (e.g., Schedule A) attached to the trust instrument or by a description in the granting clause. Following the execution, title to the trust property should be transferred immediately to the trustee.

Assets are not transferred merely “by recital of assignment, holding or receipt in the trust instrument.”49 When the sole trustee and the grantor are different persons, transfer is accomplished when the grantor has taken all actions a grantor must take to complete registration. When the grantor and trustee are the same person, the law requires a complete transfer of assets into trust registration.50

Certain kinds of property should not be transferred to the trust or should be transferred only after careful research (e.g., I.R.C. § 1244 stock and subchapter S stock).

[7.25] 2. Pourover Trust

If the trust will serve as a receptacle for property poured over by the will, the trust instrument must be executed by both the grantor and the trustee before the will is executed so that the trust is in existence when the will is signed.

If the trust will serve as a receptacle for property poured over by the will in New York, the trust instrument and all amendments must be executed and acknowledged in the manner required for the recording of a conveyance of real property. Otherwise, the trust is not eligible to receive a bequest or devise.51

[7.26] III. GIFTS TO MINORS When making gifts to minors, one of the donor’s most important decisions involves the selection of the legal form of the transfer to effectuate gifts. Several options are available, as discussed below.

[7.27] A. Outright Gifts

When the donor gives property outright to the donee, enjoyment of the gift is immediate and complete, and the gift qualifies for the annual exclusion (unless the nature of the property itself precludes present enjoyment). The

49 EPTL 7-1.18.

50 Id.

51 EPTL 3-3.7. See also EPTL 7-1.7.

7-12 LIFETIME GIFTS AND TRUSTS FOR MINORS § donor may transfer property outright to a minor donee,52 but there are practical drawbacks. If, for example, it becomes necessary or desirable to sell the asset, the minor’s incompetency will bar any action with respect to the property because the minor can later disaffirm contracts. The minor is unable to sign a will, so the asset will pass in intestacy and be subject to probate expenses.

PRACTICE TIP To avoid the difficulties noted above, outright gifts to minor donees can be made to a guardian or custodian.

In a guardianship proceeding, a court appoints an individual (who may not necessarily be the natural parent) as guardian of the minor. That person has various administrative burdens and expenses, which include close supervision by the court, limited discretion with respect to investments and a requirement that he or she make an annual accounting.

Custodianship is a statutory creation that allows adults to hold property on behalf of minors without resorting to court appointment. Until January 1, 1997, New York followed the Uniform Gifts to Minors Act (UGMA).53 As of January 1, 1997, New York adopted the Uniform Transfers to Minors Act (UTMA),54 which replaced UGMA. For- ty-nine states and the District of Columbia now have UTMA.

[7.28] 1. UGMA

The Uniform Gifts to Minors Act applies only to transfers made before January 1, 1997. The act was replaced because of the way (1) it limited the type of property that could be held in a custodial account; (2) the custodian could use such funds; and (3) such accounts automatically terminated at age 18 (unless special language used in creating the transfer made 21 the age at which the account would terminate). As of January 1, 1997, all existing UGMA accounts became UTMA accounts but retained the original UGMA age of termination.

[7.29] 2. UTMA

The circumstances under which an UTMA account can be established are much broader than under UGMA. An UTMA account allows a fiduciary to transfer property to a custodian in the absence of a will or when the will contains no authorization. It also permits a debtor of a minor to pay funds to a custodian.55 A custodian can hold every type of property, not just those specifically enumerated in the statute (as under UGMA). The custodian is allowed to use custodial property as he or she considers advisable for the use of the minor.56 The custodian need not consider the resources of the minor or any duty or ability of anyone (including the custodian) to support the mi- nor.

The standard of investment is included in the act. Although a custodian, unlike a trustee, is not governed by the prudent investor rule, he or she must observe the standard of care that a prudent person would use in dealing with

52 Rev. Rul. 54-400, 1954-2 C.B. 319.

53 EPTL 7-4.1–7-4.13.

54 EPTL 7-6.1–7-6.26.

55 See EPTL 7-6.6, 7-6.7.

56 The form of written instrument for various types of custodial property is provided in EPTL 7-6.9(b).

7-13 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION someone else’s property. The custodian is held to a special investment skill or expertise if the custodian possesses such, or was appointed because of a representation that he or she possesses such, skill or expertise.

Because UTMA does not provide for co-custodians, only one custodian may act, and the account can have only one beneficiary. The donor should not act as custodian. A transfer to a custodian is a transfer of a present interest and a completed gift for tax purposes. However, if the donor is the custodian and dies while the custodian account is in effect, the property will be included in the donor’s estate.57 A minor’s parent should not be the custodian, as the parent’s legal obligation to support a minor donee may result in the property being included in the parent’s gross estate.

By designating an UTMA custodian for any bequest in a will, probate is simplified because the custodian, and not the minor, is the person to whom process must issue or notice must be sent. If a testator does not want UTMA to apply with regard to gifts to a minor, he or she must expressly prohibit transfer to a custodian; otherwise, EPTL 7-6.6 applies.

Under UTMA, the custodian relationship does not end until the minor reaches age 21 (unless the account is a former UGMA account with a termination age of 18 or an election is made to make 18 the age of termination). If the beneficiary dies before age 21 (or 18 if such was elected for the account), the UTMA account will be payable to the beneficiary’s estate. Because most jurisdictions have enacted UTMA, the account will not be affected if the custodian or minor relocates to another state.

UTMA accounts provide a simple way to hold gifts for minors and are created at minimal cost. More complexity is sometimes required if the asset is unusual, the beneficiary has special needs or the donor wants to ensure the asset is managed beyond the age of 21. In those cases, trusts are used.

[7.30] B. Trusts Created Especially for Minor Beneficiaries

There are two types of trusts created especially for minor beneficiaries under I.R.C. § 2503. One is formulated under I.R.C. § 2503(c) and the other under I.R.C. § 2503(b). These sections transform certain gifts in trust into present interests for gift tax purposes.

[7.31] 1. Section 2503(c) Trust

The § 2503(c) trust (also called the age 21 trust) is an attractive gift-transfer vehicle. It enables the donor to transfer assets into a trust for the benefit of a minor. The transferred property can remain in the trust until the donee is 21 (even if the age of majority for state law purposes is less than 21), and the gifts to the trust may qualify for the gift tax annual exclusion.

This type of trust also can give the trustee very broad investment powers, so the trustee must be carefully selected. The donor should not serve as trustee because, given the trustee’s discretionary power to distribute income and principal, the donor/trustee would thus retain the power to control the beneficial enjoyment of the trust property.58 Consequently, the trust would have to be included in the donor’s estate if he or she died while acting as trustee. The nondonor parent also should not serve as trustee, in order to avoid a potential problem concerning the parent/trustee’s power to make distributions that would discharge the parent’s support obligation.59

57 I.R.C. §§ 2036(a)(2) and 2038 apply because of the discretionary powers vested in the custodian.

58 See I.R.C. §§ 2036, 2038.

59 See I.R.C. § 2041.

7-14 LIFETIME GIFTS AND TRUSTS FOR MINORS § Compliance with I.R.C. § 2503(c) avoids the “future interest” problem that otherwise arises in relation to gifts transferred into trusts. The three statutory requirements of such a trust are that all income and principal be

• available for distribution by the trustee to the donee,

• distributed to the donee at age 21 when the trust terminates, and

• paid to the donee’s estate or pursuant to the donee’s exercise of power of appointment if the donee dies before reaching age 21.

A donor has considerable flexibility to continue the trust beyond age 21 if he or she is concerned about the donee’s ability to manage the trust assets when the trust terminates. In Heidrich v. Commissioner,60 for example, the trust beneficiary possessed the power to terminate the trust at all times after the beneficiary’s 21st birthday, and the trust automatically terminated when the beneficiary reached age 25. The U.S. Tax Court allowed the I.R.C. § 2503(c) exclusion. (Note that the trust becomes a substantial-owner trust for income tax purposes when the beneficiary reaches age 21, and, under I.R.C. § 671, the beneficiary reports all items of income, deductions and credits with respect to the trust.)

In Revenue Ruling 74-43,61 the IRS allowed a § 2503(c) exclusion when the trust gave the beneficiary, upon reaching age 21, the continuing right to compel distributions from the trust or the right for a limited time to compel distributions from the trust by giving written notice to the trustee. In the absence of such notice, the trust continues according to the trust terms, but the trust becomes a substantial-owner trust for income tax purposes under I.R.C. § 678(a)(2).

[7.32] 2. Section 2503(b) Trusts

A § 2503(b) trust is an attractive gift-giving vehicle because the trust need not terminate when the beneficiary reaches age 21.

For the donor to qualify for the gift tax annual exclusion, the trust beneficiary must have an unqualified income interest in the trust. Payment of trust income to the beneficiary may not be restricted in any way, although a spendthrift provision in the trust document is acceptable.62 The trustee may, but need not, be given discretion to make distributions of principal to the beneficiary.

The significance of the separate income and principal interests is that the I.R.C. § 2503(b) exclusion is available only with respect to present interests. The income interest is a present interest, but the remainder interest is a future interest and, therefore, not entitled to the exclusion. For gift tax purposes, the values of the present and future interests are determined by reference to the IRS valuation tables, which provide respective percentages for the income and remainder interests according to the age of the life beneficiary.63

[7.33] 3. Powers-of-Withdrawal Trusts

The Crummey trust, a variation of I.R.C. § 2503(c) and (b) trusts, is an irrevocable trust that neither mandates termination at age 21 (like a § 2503(c) trust) nor requires distributions of current income (like a § 2503(b) trust). To

60 55 T.C. 746 (1971), acq. 1974-2 C.B. 1.

61 1974-1 C.B. 285.

62 Rev. Rul. 54-344, 1954-2 C.B. 319.

63 See I.R.S. Publications 1457 and 1458 regarding transfers before May 1, 1989.

7-15 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION avoid the future-interest problem and obtain a present-interest annual exclusion, the Crummey trust agreement must give the beneficiary an unlimited power to demand the trust property (or its equivalent value), which power is immediately exercisable upon the making of the gift.64

The demand right arises only when an annual exclusion is needed (i.e., because a gift is made to the trust). The trust in Crummey involved unique provisions pertaining to a minor beneficiary for whom no guardian had been appointed. The demand power extended only to the amount of the annual transfer into the trust (and not to all the trust property). If the right was not exercised, that particular annual transfer remained in the trust, and the demand right expired at the end of the calendar year during which the transfer into the trust was made. Published and private rulings have refined the Crummey requirements and provide some guidelines as to the IRS’s position about various aspects of the Crummey demand right.

[7.34] a. Designation of Multiple Power Holders

In order to increase the number of I.R.C. § 2503 exclusions, the Crummey trust agreement may designate multiple power holders. If several beneficiaries are given withdrawal rights, the preferred approach is to permit each beneficiary to withdraw only his or her pro rata share of the gift amount, so no beneficiary’s interest is diminished by the exercise of a withdrawal right by the first beneficiary to withdraw.

[7.35] b. Notice Requirements

Each beneficiary/power holder must be informed of the demand right. Although the beneficiary must have actual knowledge of the withdrawal right, such notice apparently need not be written. Notwithstanding that some trust agreements require that notice be given to the power holder every time a gift is made to the trust, if the document does not so require, the trustee often sends a one-time notice to let the power holder know about his or her rights, the fact that future gifts are expected and that the trustee will provide additional information if the power holder so requests.65

If a trust beneficiary waives the right to notice regarding his or her right of withdrawal as to future gifts, such gifts do not qualify for the gift tax annual exclusion.66 In a case involving an insurance trust,67 however, the IRS previously held that a single letter notice to each beneficiary describing the amount of the premiums and their due dates constituted a “continuing notice” to each beneficiary. Until the IRS clarifies its position, the prudent course is to give annual notification of additions to an insurance trust.

[7.36] c. Length of Withdrawal Period

The power holder must have a reasonable time within which to exercise the right of withdrawal. In Crummey, the beneficiary had to make the demand before the close of the calendar year. The court noted that transfers to the trust might be made close to year-end. The beneficiary had approximately two weeks in which to exercise his demand rights before they expired, and the exclusion was allowed. In another case, the gift was made on December 29, subject to a withdrawal right that would expire on December 31.68 Neither the donor nor the trustee informed the adult beneficiary of his demand right, and the exclusion was denied.

64 Crummey v. Comm’r, 397 F.2d 82 (9th Cir. 1968), rev’g 25 T.C.M. (CCH) 772 (1966).

65 See Moore, Tax Consequences and Uses of “Crummey” Withdrawal Powers: An Update, University of Miami 22d Institute on Estate Planning (1988).

66 I.R.S. Priv. Ltr. Rul. 95-32-001 (Apr. 12, 1995).

67 I.R.S. Priv. Ltr. Rul. 81-21-069 (Feb. 26, 1981); see also Rev. Rul. 81-7, 1981-1 C.B. 474.

68 Rev. Rul. 81-7, 1981-1 C.B. 474. 7-16 LIFETIME GIFTS AND TRUSTS FOR MINORS § Other IRS rulings have approved instruments specifying withdrawal periods of 30 to 90 days. What is most important is that the beneficiary has a reasonable opportunity to exercise the demand right. A late December gift can qualify, as long as the trust agreement does not require lapse of the withdrawal right at year-end.

[7.37] d. 5 & 5 Exemption on Gift Tax Treatment

The Crummey demand right may generate adverse estate and gift tax consequences for the power holder. The holder of a Crummey demand power has the absolute right (before its lapse) to withdraw an amount from the trust. Because the Crummey power can be exercised in favor of the power holder, it is a general power of appointment under I.R.C. § 2041. Given that the exercise or release of a general power is deemed a transfer of property,69 any amount that is subject to such withdrawal at the time of the beneficiary’s death will be includable in the beneficiary’s gross estate for estate tax purposes. Thus, the following actions would constitute gift transfers by the power holder:

• exercising the power of appointing the property to another person (even though the power holder never actually owned the property);

• release of a general power because the taker in default of appointment is considered to have received a gift from the power holder; and

• lapse of a noncumulative general power of appointment (deemed a release of the power).70

The lapse provision may apply to a Crummey beneficiary because of the annual lapse of the demand rights and will thus constitute a gift, for gift tax purposes, from the power holder to the trust. However, such gift treatment will apply only to the extent that the total amount of all the beneficiary’s lapsing withdrawal rights during the current calendar year exceeds the greater of $5,000 or 5% of the value of the assets out of which a demand could have been made. The 5 & 5 exemption from gift tax treatment on the lapse of a general power applies whether or not the trust agreement makes any reference to 5% or $5,000.

To avoid potentially adverse gift tax consequences, the trust agreement often provides that the power holder’s withdrawal right is limited not only to the amount of the donor’s gift but also to the 5 & 5 ceiling amount each year.

EXAMPLE

A donor contributes $14,000 in 2015 (or $28,000 if married and the spouse consents to gift splitting) to a Crummey trust to take advantage of the I.R.C. § 2503 exclusion. The beneficiary holds a demand right over annual transfers to the trust, exercisable for 30 days after each gift to the trust. The terms of the trust agreement further limit the beneficiary’s right to withdraw to the 5 & 5 exemption, as transfers to the trust that exceed $5,000 may encounter adverse gift tax consequences upon lapse of the power.

To avoid adverse gift tax consequences associated with the lapse of demand rights, the trust agreement may grant the beneficiary a hanging power:71

69 I.R.C. § 2514(b).

70 I.R.C. § 2514(e).

71 See Practical Drafting, p. 77 (Oct. 1982), p. 143 (Jan. 1983), p. 187 (Apr. 1983), p. 704 (July 1985); U.S. Trust, Bank of America Private Wealth Man- agement, Trust Provisions Manual.

7-17 § ESTATE PLANNING AND WILL DRAFTING, 2013 REVISION (1) the demand right will lapse within any year only to the extent of the § 2514(e) 5% or $5,000 exception, and (2) to the extent that the demand right for the year exceeds the 5% or $5,000 amount, the demand right continues and will lapse within the 5% or $5,000 exception in future years.

For income tax purposes, a beneficiary possessing the power to demand property from the trust is treated as the owner of some part of the trust.72 Therefore, the beneficiary reports the ordinary income, capital gains, deductions and credits relating to that portion of the trust. Because a beneficiary typically may exercise the withdrawal right for only part of the year, the trustee reports to the beneficiary, on the date on which the withdrawal right arises, only the income and deductions relating to whatever portion the amount of the withdrawal right (e.g., $10,000) represents of the fair market value of all the trust’s corpus.73

72 I.R.C. § 678(a).

73 Treas. Reg. § 1.6713(a)(3), (b)(3).

7-18

THE 1997 AMENDMENTS TO THE EPTL REGARDING

LIFETIME TRUSTS: A TWENTY-YEAR LOOK

GERALD I. CARP, Esq.

BENJAMIN A. ROSEN, ESQ.

Schiff Hardin LLP New York City

ETHICAL DILEMMAS INHERENT IN A TRUSTS AND ESTATES PRACTICE

VICTORIA L. D'ANGELO, ESQ.

BARCLAY DAMON, LLP Clarence, NY

ETHICAL DILEMMAS INHERENT IN A

TRUSTS AND ESTATES PRACTICE

I. BRIEF INTRODUCTION

A. STANDARD OF CARE

1. The New York Rules of Professional Conduct, effective April 1, 2009, were a combination of the ABA Model Rules and the New York “prior” Lawyer’s Code of Professional Responsibility. The new rules have been amended several times since then, the last time on March 28, 2015.

2. New York State Bar Association Committee on Professional Ethics renders opinions periodically.

3. Various Courts render ethics decisions.

II. FIDUCIARY-CLIENT RELATIONSHIP

A. WHOM DO YOU REPRESENT?

1. Fiduciaries of the estate vs. the estate

An attorney may say he or she represents the estate, but what he or she really means is he or she represents the fiduciaries of the estate. An estate cannot retain an attorney or make decisions for itself, only the fiduciaries of the estate can. (Ordover and Gibbs, Fiduciaries, Attorneys and Duty to Beneficiaries, N.Y. L. J., Feb. 25, 1999, p.3.)

2. Conflicts of interest

There is no rule, ethical or otherwise that prevents a lawyer from representing an executor who has a potentially adverse individual interest against the estate.

In re Dix, 11 A.D.2d 555, 199 N.Y.S.2d 958 (3d Dep't 1960): Appellate Division, Third Department, denied a motion to disqualify an attorney based on the potential of a conflict of interest.

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Representation when there is an actual conflict of interest is not advisable, or ethical, without full disclosure and a waiver.

A client can waive his or her right to conflict-free representation in writing after full disclosure of the risks and benefits.

Conflicts extends to partners and associates of the primary attorney.

Avoid any appearance of “turncoat representation” (representing the other side - other executor or beneficiary.)

A lawyer should avoid even the appearance of impropriety

B. FIDUCIARY EXCEPTION TO THE ATTORNEY/CLIENT PRIVILEGE

1. Attorney client privilege, under CPLR §4503, deems communications between an attorney and his or her client as confidential unless it falls under very specific exceptions. These exceptions include communications made in the presence of a third party, communications that do not pertain to legal representation, the underlying factual situation, the existence of a retainer agreement or any communications in which privilege has been waived.

2. In 2002, CPLR §4503 was amended to add that a beneficiary shall not be treated as a client of the attorney for the fiduciary solely by reason of his or her status as a beneficiary. It also was amended to provide that there is no waiver of the privilege for confidential communications between the attorney and fiduciary.

3. Under CPLR §4503 (b), in a probate action, an attorney shall disclose information as to preparation, execution and revocation of any Will, but not privileged information that would disgrace the memory of the decedent.

4. The fiduciary exception to an attorney client privilege allows communications by a fiduciary to his or her attorney which are sought by a beneficiary. This exception has been enforced because of the fiduciary's obligation to disclose information about the administration of an estate or trust.

5. Rule 1.6(a) further protects the attorney-client privilege by prohibiting the revelation of client confidence or the use of that confidence against the client unless the client has given consent after full disclosure or unless the attorney is bound by law, court order or professional code. This includes confidences related to a client's intent to commit a crime (Matter of King,

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NYLJ, 9/25/97 at 33, col 6 [Surr. Ct. Westchester Co.]) or perpetrate a fraud or confidences necessary to exonerate an attorney from accusations of wrongdoing or to collect attorney's fees.

A lawyer may reveal:

(a) Confidences or secrets with the consent of the client or clients affected, but only after full disclosure to them.

(b) Confidences or secrets when permitted under Disciplinary Rules or required by law or court.

(d) Confidences and secrets necessary to establish or collect the lawyer's fee or to defend the lawyer or his or her employees or associates against an accusation of wrongful conduct.

6. In relation to our chosen field, privilege survives our clients and not even an Executor can waive it unless the confidences can effectuate the decedent's intentions. No disclosure should be made which would “disgrace the memory of the decedent”.

C. DISPOSITION OF ORIGINAL WILLS ON DEATH, DISABILITY OR RETIREMENT OF THE ATTORNEY

1. Status quo

Currently, there is no universal standard of care for the disposition of original wills maintained by attorneys who are, for one reason or another, no longer in practice. Some are handled with care and passed on to another attorney to be kept safe from fire and mildew. Others are pitched into a dark, damp basement to be forgotten for years. A proceeding to admit a lost Will to probate should be avoided since it is not only costly and an embarrassment to the attorney, but has unethical trappings.

2. Proposed suggestions

At the top of the list was the suggestion to amend the Rules of Professional Conduct to require all attorneys who possess the original wills of clients to make provisions for those documents after they discontinue their practice.

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Also suggested was passing a statute or issuing a court order to require the fiduciary of a deceased lawyer's estate to make a reasonable effort to return any original wills in the estate's possession to the clients.

The Executive Committee has suggested depositing the remaining wills with the Surrogate's Court in the county in which the attorney maintained his or her practice. This of course, is to be avoided as a primary option to prevent an overflow of wills being filed for safekeeping. Many counties are already running out of room and some charge for such storage.

III. MULTIPLE FIDUCIARIES

A. ADVANTAGES OF MULTIPLE REPRESENTATION

1. The estate and the beneficiaries are frequently part of a single family and have common goals and priorities.

2. Financially, the estate is only responsible for one reasonable legal fee and using a single attorney may help lessen the estate expenses.

B. ATTORNEY MUST HAVE UNDIVIDED LOYALTY

1. Rule 1.7 provides that a lawyer shall not represent a client if “the representation will involve the lawyer in representing differing interests” or if there is a “significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.” The lawyer may represent a client if he or she will be able to “provide competent and diligent representation to each affected client,” or the clients have given informed written consent.

2. Aim for conflict-free representation to insure loyalty and if each fiduciary wants or needs his or her own attorney, that is fine.

C. ATTORNEY AS INTERMEDIARY

1. Clients with potentially conflicting interests in an estate may seek an attorney to act as an intermediary to preserve their more important common goals.

2. According to the American College of Trust and Estate Counsel, “A lawyer may act as an intermediary between clients if (1) the lawyer consults with each client concerning the implications of the common representation, including the advantages and risks involved, and obtains

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each client's consent to the common representation (2) the lawyer reasonably believes that the matter can be resolved on terms compatible with the clients' best interests, that each client will be able to make adequately informed decisions in the matter and that there is little risk of material prejudice to the interests of any of the clients if the contemplated resolution is unsuccessful (3) the lawyer reasonably believes that the common representation can be undertaken impartially and without improper effect on other responsibilities the lawyer has to any of the clients.”

3. As the acting intermediary, the lawyer has a responsibility to consult with each client regarding the decisions to be made to prevent uninformed decisions.

D. MATTER OF SACKLER

1. In re Sackler, N.Y.L.J., May 16, 1989 (Sur. Ct. Nassau Co.) - In his last will and testament, Dr. Arthur M. Sackler named his third wife, his four children, his first wife and his attorney as co-executors. Each had their own attorney and the group decided to retain a “general counsel” to represent them all. The firm of the general counsel had each executor sign a written agreement that the firm would not face a conflict in defending the estate's position and representing other executors in any claim a co-executor brought against the estate in an individual capacity.

2. Clients may waive their right to conflict-free representation upon full disclosure.

3. A firm may apply to the Surrogate for advice and direction

E. FORCED WITHDRAWAL

1. A lawyer should withdraw if any of the clients request it or if he or she cannot carry out his or her legal duty. Upon such withdrawal, the lawyer should not continue to represent any involved client in relation to the matter at hand.

F. REFERENCE ARTICLES

1. Two excellent articles titled “Estates with Multiple Fiduciaries Pose Ethical and Practical Issues For Attorneys and Clients Alike” and “Early Detection of Possible Pitfalls In Fiduciary Obligations Can Prevent Later Problems” were written by John R. Morken and Gary B. Freidman and published in the Trusts and Estates Journal November/December 2001 and January 2002.

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IV. ETHICAL CONFLICTS IN PLANNING AND MANAGING ESTATES

A. SELF-DEALING

1. The rule against fiduciary self-dealing has been extended to the attorney of the fiduciary. If self-dealing is discovered and there is no exonerating clause in the will and no consent by those effected, the courts will apply a “no further inquiry” rule, which could lead to the courts finding the transaction void and making the self-dealer liable for damages and lost profits without considering whether the deal was fair or the price adequate or if there was an actual gain acquired.

2. In re Kelloq, N.Y.L.J., Dec 30, 1999, p. 25, col. 4, (Sur. Ct., NY Co), Surrogate Preminger of New York County decided a case impacting the ever-present ethical questions about self-dealing. Mercy P. Kellog passed away and left a townhouse in Greenwich Village as the primary asset of her estate. The attorney chosen by the Administrator C.T.A., who is also the plaintiff in this matter, is also the owner of a real estate agency located in eastern Long Island. The attorney and his client entered into an agreement in which the real estate agency owned by the attorney was granted exclusive listing rights. The attorney used his connections and brokered a deal substantially above the appraised value of the townhouse. After the attorney collected his standard six percent fee, the Administrator C.T.A. argued that the attorney engaged in an impermissible conflict of interest by acting as both the broker and the attorney in the sale of the townhouse. Surrogate Preminger sided with the plaintiff stating “The conflict of interest is plain. Petitioner had an obligation to sell the property within a reasonable period of time at the highest possible price. It was not in the attorney's interest for the sale to be made to any purchaser but his own, at any price.” The attorney/broker was ordered to refund the $160,500 commission he received on the sale.

3. If you are unsure about the ethical nature of a transaction, apply for an advice and direction proceeding with the Surrogate.

4. In re Rothko, 43 N.Y.2d 305, 401 N.Y.S.2d 449 (1977) 798 Paintings created and owned by the deceased, expressionist painter Mark Rothko, were the subject of judicial scrutiny. The daughter of the late painter brought suit against the three executors of the estate, the financial advisor to her father and various others affiliated with the gallery. One of the executors was an employee of the art gallery and helped to broker a deal in which 100 of the paintings, worth millions of dollars were sold to the gallery for a mere $1.8 million and the remaining 698 were sold to the gallery at a 50% commission to the

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executors. The petition charged them of entering into a conspiracy with the art gallery and its affiliates in order to defraud the estate, waste its assets and earn a profit. One of the executors was accused of acting with a conflict of interest because of his employment at the art gallery. After months of dispute, the New York State Attorney General was added to the lawsuit as a representative of the public as “the ultimate beneficiaries of the Mark Rothko Foundation”. For seven months, seven sets of lawyers argued before the New York Surrogate's Court. Surrogate Millard Midonick, in an eighty-seven page decision, removed all three of the executors from the estate and canceled the contract with the art gallery, making the defendants liable for the $7.3 million for the present value of the paintings. The Justice stated that a self-serving breach of loyalty was exhibited.

5. A decedent may authorize self-dealing with express language in the instrument but extreme caution must be followed and the fiduciary must still act in good faith.

B. BENEFICIARY/FIDUCIARY/LAWYER

1. Attorney as a Beneficiary

An attorney should not influence a client to name him or her as a beneficiary. That does not mean you cannot accept a gift from a client, but with acceptance of the gift, the lawyer must be aware of the strong inference of overreaching. If a client is insistent on the gift, you should be insistent upon another attorney to prepare the will.

In Matter of Putnam, 257 N.Y. 140 at (1931) the court ruled that a bequest to an attorney gives rise to the inference of undue influence and advised that such a client would be better off having their will drafted by another attorney.

In Matter of Eckert, 93 Misc. 2d 677 (1978), the attorney/beneficiary's testimony alone was not strong enough to overcome undue influence.

In Estate of Lawson, 75 A.D. 2d 20 (1980), the court acknowledged the inadequacy of the evidence of the attorney/draftsman/ beneficiary in defense to charges of undue influence.

2. Attorney as a Fiduciary

A lawyer should not consciously influence a client to name the lawyer as executor, trustee, or lawyer in an instrument. In those

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cases where a client wishes to name the lawyer as such, care should be taken by the lawyer to avoid even the appearance of impropriety. This includes comments that attorneys usually or often serve as executors or fiduciaries. Avoid any activity that would cause a client to name you as the executor of their estate.

If you do prepare a will in which you are designated the executor, you should be careful to avoid any appearance of impropriety. This includes compliance with SCPA § 2307-a, informing the testator that the executor does not need to be an attorney, will be entitled to executor’s commissions according to statute and will be entitled to legal fees as well. Have this disclosure available in writing and signed by the testator.

For wills executed prior to January 1, 1996, one can ask the court to waive the requirements or show substantial compliance. In Estate of Weinstock, 40 N.Y. 2d 1 (1976) the court held that upon evidence of overreaching on the part of an attorney who was named as the executor, letters testamentary can be denied and the nomination can be expunged. This rule can be invoked at any time during probate or at the accounting stage, as was proven in Matter of Harris, 123 Misc. 2d 247, 473 N.Y.S. 2d 125 (Surr. Ct. Nassau Co. 1984), where the attorney did not fully disclose the statute pertaining to entitlement to commissions.

3. Attorney's Fees and Commissions

Rule 1.5 prohibits an attorney entering into an agreement to charge or collect an excessive fee.

Rule 1.5(a) lists the factors to be considered in determining the reasonableness of a fee, such as:

(a) the time, labor, difficulty and skill involved

(b) the likelihood that the employment will preclude other employment

(d) the amount involved and the results

(e) the time limitations imposed

(f) the length and nature of the relationship with the client

(g) the experience, reputation and ability of the lawyer

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(h) whether the fee is fixed or contingent

In Matter of Freeman, 34 N.Y. 2d 1, 355 N.Y.S. 2d 336 (1974), the Court affirmed an attorney's fee award where the Surrogate made an independent evaluation of the value of the services rendered.

In Matter of Potts, 213 A.D. 59, 209 N.Y.S. 655 (1925), the Court affirmed an attorney's fee award in an estate involving numerous complications.

An attorney who is also a fiduciary must obtain court approval to receive advance legal fees or fiduciary commissions. See SCPA §2110.

(a) Violation of such court approval constitutes serious professional misconduct. Matter of Embser, 639 N.Y.S. 2d 240.

(b) Unapproved advances cannot be “authorized” pursuant to discretionary powers in the will. Matter of Guy, 91 A.D. 2d 266.

An attorney who is also a fiduciary must place estate funds in a separate estate account. These funds may not be commingled with funds of other clients in an attorney's trust or IOLA account. See EPTL §11-1.6, DR 9-102 (A), and Matter of Prounis, 680 N.Y.S. 2d 505.

SCPA § 2307 - provides that an attorney who prepares a Will which names him or her as Executor, shall inform the testator that the Executor does not need to be an attorney, and the attorney is also entitled to commissions, etc. If the testator signs such an acknowledgment, the attorney may receive full commissions (and not half the statutory amount).

C. PRIVITY/MALPRACTICE

1. Privity standards have been lowered to provide remedy to the victims, to hold the offending attorney accountable and to deter future malpractice.

2. Many state courts now allow parties not in privity to sue in tort on legal malpractice claims. “The vast majority of modern decisions have favored expanding privity beyond the confines of the attorney-client relationship”

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3. In Viscardi v. Lerner, 125 A.D. 2d 662, (1986) the brothers of the testator of the will in question sued the attorney/draftsman for negligence for allegedly creating a will that they felt did not reflect their dead brother's wishes. They claimed the will drafted by the plaintiff gave too much money to the decedent's wife. The New York State Appellate Division followed the privity rule strictly and continued to do so in several subsequent actions, making it among the minority of states that strictly adhered to the privity law as it stands.

4. In Estate of Schneider v. Finmann, 15 N.Y. 3d 306 (2010), the decedent had transferred ownership of a $1 million life insurance policy from a family limited partnership to himself. When he died, the insurance proceeds were subject to estate tax. The decedent’s estate filed a malpractice action against the estate planning attorney and alleged he negligently advised the decedent to make the transfer or failed to properly advise the decedent of the potential estate tax consequences. After several lower decisions, the Court of Appeals decided that privity exists between the Executor and the estate planning attorney and allowed the claim. It stated “the estate essentially stands in the shoes of the decedent” and could maintain the claim. But strict privity still stands and is a bar as against beneficiaries’ malpractice claims.

5. If you are found guilty of legal malpractice as an attorney, you may face a hefty fine, suspension, disbarment, and an increase in malpractice insurance premiums depending on the severity of the infraction.

D. JOINT REPRESENTATION

1. We often represent spouses (or others) in their estate planning needs and must be clear about the joint representation and possible conflicts.

2. Clients should be advised that they have a unity of interest or goals and should acknowledge that they do not see a conflict of interest in having the same attorney represent both of them.

3. The attorney should specify that the clients are waiving any rights to confidentiality as between them.

4. If either client becomes adverse to the other, either the lawyer or one of the clients may terminate the representation and the attorney may then represent the other client.

5. All of the above should be included in the Engagement/Retainer letter that the clients sign in the beginning.

- 11 - 11782093.1 V. ATTORNEY GRIEVANCE COMMITTEE

A. EXAMPLES OF COMMON MISTAKES

1. Misappropriation of client funds from trust account

2. Attorney paid unauthorized expense

3. Commingling of attorney funds with trust funds

4. Withdrawal of client funds from trust account to pay disputed attorney fees

5. Conversion of client funds

6. Failure to maintain required bank records for client's funds

7. Failure to re-register as an attorney every 2 years, as required

8. Forging of prescriptions for personal use

9. Failure to notify clients of suspended status

B. EXPLANATION OF PROCESS

1. “The Attorney Grievance Committee of the Fourth Judicial Department of the State of New York was formed to investigate and prosecute complaints of misconduct against lawyers” (Attorney Grievance Committees Fourth Judicial Department, Fifth, Seventh and Eighth Judicial Districts, “How Complaints Against Attorneys are Processed”)

2. Process is confidential pursuant to law. (Judiciary Law §90(10))

3. The Grievance Committee does not hear fee-dispute cases. The complaint must be a violation of the New York Rules of Professional Conduct and evidence of this violation must be supplied.

4. A client complaint must be written and sent in to the appropriate Grievance Committee. There is no charge for the filing of a grievance. Upon receipt of the complaint, a staff member will review it to see if it is a misunderstanding or a possible breach of ethics. If it is a simple misunderstanding, the Committee will not review it. If the complaint is a fee dispute or other minor matter, the Committee will refer the complaint to the local bar association to be resolved. If it is indeed an ethical question, a copy of the complaint will be sent to the accused attorney for his or her response. A copy of that response will then be sent to the complainant. If this response does not resolve the matter, further action

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will be taken. The Committee may also initiate a sua sponte (its own) investigation.

5. An investigation will be initiated for all complaints that reach this stage. “Full and forthright cooperation with the Committee is the lawyer's obligation.” (Matter of Fraser, 515 N.Y.S.2d 361 (4th); NYSBA Op. #348.) After the investigation is completed, the Grievance Committee will review the facts and determine the appropriate action.

6. The Committee has the power to dismiss the complaint, issue a letter of caution or admonition to the attorney, or refer the complaint to the Appellate Division of the Supreme Court of New York for a formal disciplinary proceeding. The Appellate Division has the ultimate authority in this state and has the power to impose such disciplines as disbarment, public censure, or suspension.

7. Disbarment is not permanent in New York State. After 7 years; the attorney is allowed to apply for reinstatement, which is a rare occurrence.

C. REPORTED LOSSES

1. The reported losses in New York State are usually mostly in the following areas:

Real Property Escrow

Investments

Estates and Trusts

Settlements

2. The Lawyers Fund for Client Protection

handles the reimbursement to clients and pays millions of dollars to claimants each year.

is funded by New York Attorneys who are required to pay a biennial registration fee in order to practice

D. HOT TIPS FOR AVOIDING CLIENT GRIEVANCES

1. Nip a fee dispute in the bud with a written agreement

Entering into a written agreement with client is advisable for set fees and compulsory for contingent fees.

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According to the Fee Dispute Resolution Program New Part 137 of the Rules of the Chief Administrator, in any civil matter after June 1, 2001, if a client requests a fee arbitration, it will be mandatory for the attorney.

Effective March 4, 2002, lawyers are required to provide many clients with a “letter of engagement” if the fees are expected to be $3,000 or more.

In the trusts and estates area, I would recommend a written letter of engagement regardless of the amount of expected fees.

2. Avoid commingling funds

ABA Standards for Imposing Lawyer Sanctions §4.12 (commentary): “Lawyers who commingle clients' funds with their own subject the clients' funds to the claims of creditors, commingling is a serious violation... even when the client does not suffer a loss.”

Rule 1.15(a) states that “a lawyer in possession of any funds or other property belonging to another person, where such possession is incident to his or her practice of law, is a fiduciary, and must not misappropriate such funds or property or commingle such funds or property with his or her own.”

3. Communicate with your client

Rule 1.4(a)(1)(3) states that an attorney should “keep the client reasonably informed about the status of the matter.”

Rule 1.4(b) states that a lawyer should explain a matter to a client as “reasonably necessary to permit the client to make informed decisions.”

Proper communication includes returning the phone calls of the client. (Matter of Stenstrom, 605 N.Y.S. 2d 603 and NYSE Op.#396)

4. Get things done!

Rule 1.3(b): “A lawyer shall not neglect a legal matter entrusted to the lawyer”

22 NYCRR § 1022.8 specifically obligates an attorney to expedite court cases.

5. Avoid a conflict of interest

When representing a couple in their estate planning matters, discuss the possibility of conflict and how estate planning for one may affect the other one. See Rule 1.7 Conflict Rules –

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(a) Determine if a conflict exists, if lawyer’s judgment is adversely affected by representing other client.

(b) Possible waiver – determine whether the conflict may be waived by both clients. If after full disclosure, the attorney feels he or she can still adequately represent the client, a waiver is the answer.

(c) Representing multiple clients with potential conflicts of interest is a common thread in estate and trust planning. All engagement letters should contain a discussion and possible waiving of said conflict if applicable.

An attorney must avoid even the appearance of a conflict, not just the actual conflict.

6. Be mindful that your attorney-client relationship does not terminate with the case.

Rule 1.9: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse….”

“An attorney may not accept employment relating to matters that adversely affect a former client if he previously represented that client in a matter related to the subject of the new employment.” (Strianese v. Amalgamated Cordage Corp., 607 N.Y.S.2d 834, 835 (4th; NYSBA Op.# 628)

7. Keep your confidences

Remember to refrain from disclosing even a client's name without prior consent.

Even with a prior written consent, caution should be used for any information disclosed to others.

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FACULTY BIOGRAPHIES

OVERALL PLANNING CHAIRS AND MODERATORS

SYLVIA E. DI PIETRO, ESQ., LLC 55 West Fourteenth Street Suite 4H, New York, NY 10011 (212) 242-8800, fax (212) 633-6298 Website: sylviadipietro.com E-mail: [email protected]

Sylvia E. Di Pietro, Esq., LLC provides representation in the area of Elder Law, Article 81 and Article 83 Guardianship petitions and advocacy and related contested accounting and trust matters. The Firm also provides a full range of services with respect to probate, contested probate, complex trust litigation; and administration. The firm also focuses on negotiation and drafting of Risk Management Contracts in the Television, Music and Entertainment Industries.

Sylvia has also been appointed referee and receiver in real estate and guardianship matters. She is a member of the Guardianship Advisory Committee of the New York State Supreme Court, New York County. In 2013, Sylvia taught the first certified course in Elder and Article 81 Guardianship Law as an Adjunct Professor of Law at Brooklyn Law School.

In September 20, 2013, Sylvia was awarded by New York County Lawyers Association the Jack Newton Lerner Award for Excellence in the Contribution of CLE Training. Among the positions she presently holds are Chair of the Elder Law Section, former Vice Chair of the Estates Trusts Section, and present Chair of the CLE Committee for the New York State Bar Association, Trusts and Estates Section.

PRIOR LAW-RELATED EXPERIENCE Official Court Reporter --- Supreme Courts of State of New York, Queens County & Kings County

CORPORATE / EXECUTIVE EXPERIENCE

FORSYTHE INTERNATIONAL LTD., New York, NY --- President of Sales Managed a sales force in Premium Incentive and Advertising Specialty industries, promoting creative ideas to Fortune 500 companies. Clients include IBM, TRW, Iams, JC Penny, Shell Oil, Blue Cross/Blue Shield, Deluxe Checking, First Federal Savings, The Guardian, Iowa Film Office, Hyatt, Goldman Sachs & SW Bell Telephone

SYLVIA DI PIETRO CONSULTING, New York, NY Specialized in the creation and implementation of new business concepts for start-up companies. Developed new businesses; researched and marketed intellectual properties. Created all aspects of public relations, media placement advertising and sales promotional campaigns for celebrity clients. Clients include Princess Elizabeth of Yugoslavia, The Medici Archives, Anthony Quinn, Michael Bolton & Sir John Mills.

SYLVIA E. DI PIETRO, ESQ. : BAR ASSOCIATION & LAW RELATED ACTIVITIES New York Women’s Bar Association . Vice President, 2007-08, 2008-09 . Recording Secretary, 2006-07 . NYWBA Delegate to Network of Bar Leaders, 2007-08, 2008-09 . NYWBA Delegate to Women’s Bar Association of the State of New York Board of Directors, 2008-09; previously served as an alternate Delegate to WBASNY Board of Directors Meetings (e.g., 9/05, 11/05) . Member, 2007 NYWBA Annual Dinner Committee . Co-Chair, Women’s History Month 2007, Commerce Bank Reception Honoring Phyllis Gangel-Jacob . Chair and Moderator, NYWBA Seminar: ‘‘Improving Your Employment Potential,’’ 2007 . Co-Chair, The Ins and Outs of Financing of Marital Homes In Divorce,’’ American Home Mortgage October 2007 . Co-Chair, Inauguration of the Litigation Committee, Commerce Bank Reception, October 2007 . Event Chairperson, NYWBA & Three Other Women’s Bar Associations, Judith Ripka Private Shopping Event, December 2007 . Co-Chair, NYWBA Judges’ Reception, January 2008 . Member, 2008 Annual NYWBA Dinner Committee . Chair, Saks Fifth Avenue Extravaganza November, 2008 . Contributing Writer, NYWBA Newsletter, “What It’s Really Like to Practice Law in NYC as a Woman,” Summer 2008 . Co-Chair, NYWBA Judges’ Reception, January 2009 . Organized and promoted NYWBA CLE program, ‘‘Ethics Update’’ March 19, 2009 . Member, Committee on Trusts and Estates, 2006 to present . Speaker, Elder & Disabilities Committee, "Role and Responsibilities of Trustees of Supplemental / Special Needs Trusts" - Thursday, January 31, 2013

New York County Lawyers Association- Member of the Board of Directors . Board Member, Appointed to the NYCLA Board of Governance, May 2009-May 2013 . Delegate to the NYSBA House of Delegates, May 2009 to May 2013 . Member- NYCLA Foundation, Fundraising Committee to present . Chair- Estates Trust Section 2008-2010. Duties include membership, ‘‘Meet & Greets,’’ development and sponsorship of NYCLA & Section CLEs 2008-2010. . Vice-Chair- Estates Trust Section 2008-2014. Duties include membership, ‘‘Meet & Greets,’’ development and sponsorship of NYCLA & Section CLEs 2010 to present. . Chair-Elder Law Section 2013 to present. Duties include membership, ‘‘Meet & Greets,’’ development and sponsorship of NYCLA & Section CLEs 2013 to present. . Delegate to Network of Bar Leaders as Representative for President, Ann P. Lesk, 2009-10. . Member, Communications Committee . Member Continuing Legal Education Committee . Member Library Committee . Past Chair of Real Property Section 6/2004-6/2008, Co-Chair of Committee on Condos & Coops 6/2004 to 6/2007. Duties include membership, ‘‘Meet & Greets,’’ development and sponsor of Bar Association & Section CLEs; creator, NYCLA Express Real Estate Online Forms. . Member-Section on Trusts & Estates; Member-Legislative Committee; prepared Section Legislative Report . Speaker, CLE Seminar, Blueprint for Building Your Practice October 28-29, 2005, October 20-21, 2006 . Chair, ‘‘The Great Debate over the City’s West Side Stadium,’’ March 2005 . Chair, Citywide Bar Reception: Christine Quinn Reception 2006 . Chair , Estates Trusts Section: Ruth Lewinson Memorial Lecture, March 2009 . Speaker, CLE Seminar, Detecting Forgery, May 2009 . Member, NYCLA Board Committee on Communications . Member, NYCLA Board, Committee on CLE . Speaker, CLE Seminar, Bridging the Gap, topic: ‘‘Probate,’’ August 2009 . Mentor, NYCLA Task Force on Professionalism, August 2009 . Speaker, CLE Seminar, Ethics in Trusts and Estate Transactions, September 2009 . Speaker, CLE Seminar, Bridging the Gap, topic: ‘‘Probate,’’ October 2009 . Mentor, NYCLA, Ethics Institute, 2009-2010 . Speaker, CLE, Not for Profit Boards, October 2009 . Event Committee, Fall Nina McLemore Fashions, November 2009 . Mentor, NYCLA Pilot Mentoring Program, 2010 and 2011 . Speaker, CLE, Bridging the Gap, ‘‘New NYS Power of Attorney Form’’- Jan. and Aug., 2010 . Speaker, CLE, ‘‘Planning for Non-Traditional Couples’’-Jan. 25, 2010 . Member, NYCLA Membership Task Force . Speaker, CLE, ‘‘Estate Planning for Real Estate Owners,’’ October 2010 . Speaker, CLE, ‘‘Bridging the Gap,’’ The New NYS Power of Attorney Form, April 2011 . Speaker, CLE, ‘‘What’s Next in Estate Planning,’’ with Trusts & Estates Magazine, May 2011 . Member, NYCLA Special Committee/Task Force Re: Membership . Speaker, NYCLA. Bridging the Gap, ‘‘New NYS Power of Attorney Form,’’ July 2011 . Promotions, NYCLA Bar Foundation, Fall Founders Cocktail Party . Member, NYCLA Task Force on Judiciary Budget Cuts 2011 & creator of Task Force Questionnaire, Chair of Guardianship Subcommittee and member of Surrogate’s Committee . Panelist/Speaker, NYCLA Task Force Public Forum on Judiciary Budget Cuts December 2, 2011 . Speaker, NYCLA CLE, ‘‘New NYS Power of Attorney Form,’’ December 2011 . Speaker, NYCLA CLE-Introduction to Guardianship Law, May 2012 . Speaker, NYCLA CLE-Introduction to Guardianship Law, July 2012 . Speaker, NYCLA CLE-Introduction to Guardianship Law, March 2012 . Speaker, NYCLA CLE-Guardianship and Landlord Tenant Law September 20, 2013 . NYCLA appointment to New York Supreme Court Guardianship Advisory Board . Speaker, NYCLA CLE-Introduction to Guardianship Law, December 2013 . Member, Mentoring Committee

NYCLA AWARDS . Jack Newton Lerner Award for Excellence in the Contribution of CLE Training, September 2013

New York State Bar Association . Chair, former Vice-Chair of CLE Section, Executive Board Member, Section on Trusts and Estate; Committee on Elderly and Disabled; Committee on Estate Litigation; Pre-Mortem Will Contest Subcommittee . Contributing Author, New York State Bar Association Litigation Committee’s volume on New York Will Contests, Co-Author, chapter on “Undue Influence” (anticipated publication 2013) . Member, Section on Elder Law . Member, Commercial and Federal Litigation Section . Member, Select Appointment to Committee on Cyberspace Law, 2003-2004 . Speaker, Contested Accountings, New York, December 2009 . Speaker, ‘‘SCPA Discovery §2103, §2104 and §2105,” June 2011 . Speaker, CLE, ‘‘Powers of Attorney Practice and Litigation Under the New Law, Remedies,’’ June. 2012 . Statewide Co-Chair. CLE, ‘‘Practical Skills: Probate and the Administration of Estates,’’ Fall 2012 . Statewide Co-Chair, CLE, “Contested Accounting Proceedings in Surrogate’s Court: The Law and . Techniques You Should Know- Spring 2013 . Statewide-Co-Chair, CLE, ‘‘Discovery Proceedings in Surrogate’s Court: How to Fight Them and How to Avoid Them’’-June 2014 . Statewide Chair, CLE, ‘‘Introduction to Estate Planning’’-November 2015

New York City Bar Association . Member, Council on Judicial Administration, 2008-present; . Chair, Subcommittee on Guardianship Law 2008-present . Member, Committee on State Courts of Superior Jurisdiction, 2005-07 . Speaker, CLE, Detecting Forgery, Spring 2009 . Speaker, CLE, Power of Attorney, Summer 2009 . Chair, First Department Judicial Guardianship Roundtable, November 2009 . Chair, Subcommittee on Judicial Nominations, Member, Committee on Judicial Conduct . Speaker, Law Week Public Forum: Planning for Late in Life, May 2011 . Speaker, Matrimonial Committee- Guardianship Law and Powers of Attorney

Network of Bar Leaders Board member, Representative for Columbian Lawyers Assn. 2010-2011 Columbian Lawyers Association, First Judicial District . Publicity Chair, 2010 to present . Speaker, CLE, ‘‘New York’s New Power of Attorney,’’ Spring 2010 Jewish Lawyers Guild, member in good standing American Bar Association, 2002-2006

NATIONAL ACADEMY OF CONTINUING LEGAL EDUCATION National Speaker, ‘‘Power of Attorney,’’ Spring 2012

PRO BONO ACTIVITIES . Pro Bono Employer/Mentor of paralegal students with CUNY’s Associate Degree Program at New York City College of Technology, Legal Assistant Studies Department 2006-2010 . Counseling in matrimonial matters

COMMUNITY BOARD 5 2011-2013 . General Board Member of Community Board 5 in New York City . Committee Member of Consents and Variances Committee 2011-13 . Committee Member of Education, Health and Human Services Committee 2011-13 . Committee Member of Housing, Human Services & Youth 2011-13 . Committee on Vendor Investigations . Opposition-Jamestown Plan for Chelsea Market . DOITT’s Request for information /Sidewalk Based Telecommunication Devices

COMMUNITY SERVICE SOCIETY, NYC Formed in 1939 by the merger of two venerable social service agencies: The New York Association for the Improvement of the Condition of the Poor (founded in 1843) and the Charity Organization Society (founded in 1882). Organization that fights poverty, access to healthcare, Affordable Housing, Disconnected Youth, Economic Security, Imprisonment and Re-entry and Workforce Poverty.

. Trustee, Member of the Board of Trustees-2011 to Present . Member of Communications Committee . Member of Committee on Development

UNITED NATIONS Speaker, Sixth Session of the Conference of State Parties to the Convention on the Rights of Persons with Disabilities, 18th July 2013 Speaker, United Nations, “First Convocation of First Ladies of Africa, Latin America and Caribbean Nations,” Women in Politics, September 24, 2013

COMMUNITY & POLITICAL ACTIVITIES-Democratic State Committee Person 75th A.D. . Member, Independent Judicial Screening Panel, Civil Court, City of New York, 2004 . Member, Host Committee, ‘‘Show Up for Cocktails’’ Event at which Leecia Eve, former counsel to Senator Hillary Clinton, announced formation of ‘‘SHOW UP New York’’ to mobilize young voters, June 2006 . Judicial Panel Administrator, Democratic Party, First Judicial District for the Selection of Civil Court Judges, 2008 . Member, Independent Judicial Screening Panel, Civil Court, City of New York, 2010 . Democratic County Committee Person, Political District 83/66 2012-2013 . Delegate: Democratic Judicial Convention, September 24, 2012 to present . Executive Committee Member, Chelsea Reform Democratic Club, September 2012 to present . New York State Democratic Committee,, State Committee Person, 75th A.D. 2012 to present . Chair, Executive Committee, Nomination’s Committee, Chelsea Reform Democratic Club 1/2013 . Chair, Executive Committee, Nomination’s Committee, Chelsea Reform Democratic Club 12/2013 . Chair, Executive Committee, Nomination’s Committee, Chelsea Reform Democratic Club 2014 . Female District Leader, 75th AD Part A 2014 to present

PROFESSIONAL ACTIVITIES . Member, National Organization of Italian American Women . Member, Brooklyn Law School, Alumni Association; Judge, Prince Moot Court Competition, 2001-present . Member, Italian American Law Students Association . Member, Health Business Alliance 2010

MEDIA AND PUBLICATIONS . Author, Verdict, “Crisis in Guardianships,” National Coalition of Concerned Legal Professionals, Jan. 2010 . Author, Verdict, “Impact of the New Power of Attorney Form in New York,” Jan. 2010 . Author, Live Your Life by the Numbers (Penguin Books, 1991) . Contributing Writer, Nuvo News-Minneapolis, MN . Author. NYSBA Chapter on “Undue Influence,” presently pending publication

MEDIA APPEARANCES and SPEAKING ENGAGEMENTS . 100+ national radio and television appearances and celebrity & political profiles, including on The Montel Williams Show, Phil Donohue Show, Maury Povich, The Joan Rivers Show, Geraldo, CBS This Evening, NBC This Evening, MSNBC, NYBC, Lifetime Television, BBC, Cablevision, WABC, WCBS. WMWK, WMCA, WOR, WLIB, KBX, WOOD . Featured, New York Magazine, April 2008, “New York’s Women’s Leaders in the Law.” . Featured speaker on national radio programs: retirement and estate planning, relationship conflicts over money, prenuptial agreements, the Boston Catholic Church, cyber adultery, father’s rights, custody issues . Featured Speaker: “Backwards in Heels,” Women’s Networking Forum, First American Title Company, The Adventure Group, September 2008 . Featured Speaker: “Bath Junkie,” Dr. Robert Sorin: Health, Comfort & Beauty, 1/15/09. . Featured Speaker: “Just Us Girls,” Women’s Networking Group, 1/16/09. . Keynote Speaker, National Coalition of Concerned Legal Professionals, May 2011 Reception-The Elder Law Crisis . Speaker, National Coalition of Concerned Legal Professionals, ‘‘Plan for Aging,’’ October 5, 2012 . Internet Speaker, Consumermojo.com, Barbara Nevins Taylor, The Power of Attorney, 2013 . Speaker, United Nations, New York, ‘‘The Interface Between Aging and Disability,’’ July 18. 2013. . Speaker, United States Court of International Trade, Preparing for Aging, September 30, 2015

Patricia J. Shevy, Esq. THE SHEVY LAW FIRM, LLC

We are dedicated to providing our clients with not only the most appropriate estate or business plan, but one that is clear, easy to understand and will meet the client’s needs today and for years to come.

Patricia J. Shevy is the founder of The Shevy Law Firm, LLC, of Albany, New York. Tricia focuses her practice exclusively in the areas of estate planning and administration, elder law and business succession planning.

Tricia believes in the teamwork approach and regularly works with her clients and their investment advisors, bankers, insurance agents and accountants to ensure that the plan meets the client’s long term objectives.

Tricia is an active member of the New York State Bar Association- Trusts and Estates Section (former Chairperson and active member of the Life Insurance and Employee Benefits Committee) and Elder Law Section (Co-Chair of the Estates and Tax Committee and member of the Board of Editors of the Elder and Special Needs Law Journal). She is also a member of the Albany County Bar Association, National Academy of Elder Law Attorneys and Schoharie County Chamber of Commerce.

Tricia’s past public service includes serving on the Boards of Directors of Childs Nursing Home, Albany County Correctional Facility for Children’s Benefit, Rensselaer County Housing Resources Corporation and the Watervliet City School District Board of Education, serving as president for 3 years. Currently, Tricia is on the Board of Directors and Treasurer of The Bus Stop Club, Inc., a support program for the siblings of chronically ill children.

Tricia earned a Bachelor of Science in Management-Finance from Rensselaer Polytechnic Institute in 3 years. Following graduation from RPI in 1994, Tricia received her Juris Doctor, cum laude, from Albany Law School of Union University in 1997, where she was a member of the Justinian Society.

Tricia routinely lectures to small groups regarding estate tax planning, long term care planning, estate planning issues for parents of disabled children as well as the unique issues of estate planning for non- traditional families and small business owners. Tricia also regularly lectures and writes for continuing legal education programs offered by the New York State Bar Association.

7 executive Centre Drive Albany, New York 12203 Phone: 518-456-6705 Facsimile: 518-456-6709 www.shevylaw.com

FACULTY BIOGRAPHIES

Melville, L.I.

Susan Mary Bacigalupo, Esq. McCoyd, Parkas & Ronan LLP, Garden City, NY Partner

Areas of Practice

Estate Planning Wills Trusts Real Estate Estate and Trust Litigation Estate and Trust Adminstration

Bar Admissions

New York, 1980 U.S. District Court Eastern District of New York, 1981 U.S. District Court Southern District of New York, 1981

Education

Hofstra University School of Law, Hempstead, New York

o J.D. ‐ 1980

o Honors: With Distinction

o Law Review: Hofstra Law Review, Associate Editor, 1978 ‐ 1980 Hofstra University

o B.A. magna cum laude ‐ 1977

Past Employment Positions

Edward A. McCoyd, P.C., 1983 ‐ 2000 McCoyd & Keegan, 1980 ‐ 1983 Jill Choate Beier, Esq.

Jill Choate Beier is an Assistant Professor at Marymount Manhattan College teaching courses in accounting, business law and income taxation. Her research interests focus on the areas of trusts and estates law as well as income, estate and gift taxation. In addition to her teaching responsibilities, Professor Beier acts as the Faculty Advisor and Coach to the MMC Mock Trial Team. The team participates in a regional tournament sponsored by the American Mock Trial Association each year.

Professor Beier involves her students in community service work by coordinating MMC’s participation in the Volunteer Income Tax Assistance program which is a nation-wide program administered by the IRS. Professor Beier teaches the student volunteers basic income tax preparation prior to their placement in a VITA site.

Ms. Beier is also a Partner of the McGlashan Law Firm located in New York City where her practice includes a broad range of matters in the personal planning area, including estate and tax planning for individuals and families; estate and trust administration; all aspects of Surrogate's Court practice, including probate proceedings, will contests and guardianships, and planning for charitable giving and philanthropy.

Prior to becoming a partner at MLF, Ms. Beier practiced law at Sullivan & Cromwell LLP and Patterson Belknap Webb & Tyler LLP and has held management positions at large financial institutions such as JP Morgan and Credit Suisse.

Ms. Beier is very active in the New York State Bar Association having held several positions of leadership on various committees of the Trusts and Estates Law Section. Ms. Beier is currently the Chair of the Estate and Trust Administration Committee.

Ms. Beier earned a BBA in Finance from the University of North Texas, an MBA from Fordham University Graduate School of Business (concentration in Professional Accounting), a J.D. from Touro Law School and a LL.M. in Taxation from New York University School of Law.

September 2015

KEITH D. BLACK, ESQ.

KEITH D. BLACK, P.C. 5173 MERRICK ROAD MASSAPEQUA PARK, NEW YORK 11762 516.522.2873

WWW.KEITHBLACKLAW.COM

Mr. Black maintains a primary office in Massapequa Park, New York.

Mr. Black serves as special counsel to The Diamond Law Group. Mr. Black also provides counsel to the law firm of Greco & Wolfe, PLLC, located in Garden City, New York, and the LaSasso Law Group PLLC, located in Manhattan.

Mr. Black's law practice is focused on the areas of Trusts and Estates, which includes estate and trust administration, estate and gift tax planning, business succession planning, asset protection, estate and trust litigation, guardianship's, planning for individuals with special needs and real estate transaction. Mr. Black receives appointments by the Surrogate's Courts as a Guardian ad Litem to represent minors and other persons under a disability in Surrogate's Court proceedings. Mr. Black also receives appointments as a Guardian and Court Evaluator in Supreme Court matters brought under Article 81 of the New York Mental Hygiene Law.

Previously, Mr. Black was an associate attorney at Karol Hausman & Sosnik, P.C. and Brosnan & Hegler, LLP, both located in Garden City, New York. During his tenure at Brosnan & Hegler, LLP, Mr. Black directly assisted Mark J. Brosnan, Esq. as counsel to the office of the Nassau County Public Administrator. Mr. Black's legal experience began in 2000 when he worked in the litigation department of Clifford Chance Rogers and Wells, LLP, in New York City. Mr. Black also worked in the corporate real estate department of Skadden, Arps, Slate, Meagher & Flom, LLP, in New York City. Mr. Black's career in Trusts & Estates began in 2006 when he served as the law intern to the Honorable John B. Riordan, Surrogate of the Nassau County Surrogate's Court.

Mr. Black is an active member of the Nassau County Bar Association (Member: Surrogate's Court Estates & Trusts Committee, Tax Law Committee, Elder Law Committee, and Young Lawyers Committee). Mr. Black is a member of the New York State Bar Association (Member: Trusts and Estates Law Section and Elder Law Section). Mr. Black is also a member of the Touro College - Jacob D. Fuchsberg Law Center Alumni Council, and the Nassau Lawyers Association, to which he is the current Vice-President, and past Treasurer.

Mr. Black also sits on the Board of Trustees of Congregation Beth-Ohr (formerly, Bellmore Jewish Center, having completed merger and consolidation with Congregation Beth-El of Massapequa).

Mr. Black is admitted to practice before the courts of the State of New York.; Bar Admission: 2007; Touro College – Jacob D. Fuchsberg Law Center (J.D., 2006); State University of New York at Binghamton with dual concentration in finance and management information systems (B.S., 2001).

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Joseph T. La Ferlita Trusts & Estates

Partner 1516-227-0714 ilafedita@f arrellf ritz.com

LOCATION: Uniondale

Joseph T. La Ferlita is partner to the firm concentrating his practice in trusts and estates law, with an emphasis on estate planning, estate and trust administration, and tax controversy. He counsels individual planning clients, beneficiaries, individual and corporate f iduciaries, and not-for-profit entitles, including public charities and private foundations, in connection with a multitude of estate and trust-related matters. These include, among others, the drafting of wills and trusts, estate tax and generation skipping tax planning, audits of estate tax returns and Income tax returns, the formation of not-for-profit entities, obtaining Private Letter Rulings from the Internal Revenue Service, probate proceedings, administration proceedings, judicial accounting proceedings, judicial proceedings for advice and direction on behalf of executors and trustees, spousal elective share proceedings, and proceedings for the construction and reformation of wills and trusts. He represents clients in the Surrogates Court and the United States Tax Court.

Mr. La Ferlita is admitted to practice in the State of New York, the Commonwealth of Massachusetts and the United States Tax Court. He is a member of the American and Office New York State Bar Associations. Uniondale Mr. La Ferlita is especially active in the Trusts and Estates Law Section of the New York 1320 RXR Plaza State Bar Association, where he serves as District Representative for Nassau and Uniondale, NY 11556-1320 Suffolk Counties, Chairman of the Surrogates Court Committee and Member of the Pract ice Areas Estate and Trust Administration Committee. He plays a key role in drafting proposals Trusts & Estates for new and amended estate-related New York statutes, some of which ultimately have Tax been signed into law by the Governor of New York State. Education In 2002, Mr. La Ferlita was a Judicial Intern to the Honorable Thomas C. Platt of the Boston College (MA) United States District Court, EDNY. Fairfield University (BS) New York University School of Mr. La Ferlita has had two LexisNexis Expert Commentaries published on Lexis.com . Law (LLM.) The first is entitled, "Whether the Distinction Between Construction and Reformation St. John's University School of Proceeding in New York Surrogate Courts Still Exists." The second is entitled, " The Law (JD) Fundamentals of the Separate Share Rule."

In May 2011, Mr. La Ferlita received an LL.M. degree in taxation from New York University School of Law. He received his Juris Doctor degree, Dean's List, from St. John's University School of Law in 2004, where he served as a member of the American Bankruptcy Institute Law Review. Mr. La Ferlita earned his MA. degree in Theology from Boston College in 1998 and his B.S. degree in Biology from Fairfield University in 1996.

Prior to attending law school, Mr. La Ferlita was a high school teacher for several years in the Boston area.

Attorney Advertising Jordan S. Linn Trusts & Estates

Counsel | 516-227-0793 | [email protected]

LOCATION: Uniondale

Jordan S. Linn is counsel in the trusts and estates department focusing in estate planning and administration. He is a contributor to Farrell Fritz’s New York Trusts & Estates Litigation blog. Mr. Linn is a frequent lecturer on trusts and estates topics, presenting at continuing education programs for both attorneys and accountants. Mr. Linn’s practice focuses upon structuring and implementing sophisticated gift, estate and generation skipping tax planning techniques, and the drafting of trust agreements, wills and advance directives. His practice also includes the representation of fiduciaries in the probate and administration of estates and trusts.

Mr. Linn has assisted in the representation of clients involved in Internal Revenue Service audits and United States Tax Court proceedings relating to gift, estate and excise taxes; as well as the formation and representation of private foundations and public charities.

Mr. Linn was selected for the Super Lawyers New York Metro Rising Stars (Estate & Probate) list in 2013-2015. Mr. Linn was recognized as one of Long Island Business News’ “40 under 40” in 2014. He was also the recipient of the 2013 Long Island Business News “Leadership in Law” Counsel Award. Long Island Pulse Magazine recognized Mr. Linn as one of “2013 Top Legal Eagles”. In October 2011, Mr. Linn was recognized in Long Island Office Business News’ “Ones to Watch in Retirement and Estate Planning.” Uniondale 1320 RXR Plaza Representative matters include: - Drafting and implementation of Grantor Retained Uniondale, NY 11556-1320 Annuity Trusts (GRAT), Qualified Personal Residence trusts (QPRT), Intentionally Defective Practice Areas Grantor Trust transactions (IDGT), Irrevocable Life Insurance Trusts, Charitable Lead and Trusts & Estates Remainder Trusts (CLAT/CRAT), Revocable Trusts, and Dynasty and Generation Skipping Tax Tax (GST) trust planning. - Probate and administration of large estates which include numerous testamentary and inter-vivos trusts and involve the preparation of state and Education federal estate tax returns. Hofstra University School of Law Mr. Linn serves as a member of the Holocaust Memorial and Tolerance Center of Nassau State University of New York at County’s board of directors. In 2011, he was appointed to the New York State Bar Binghamton Association’s Electronic Communications Committee. University of Alabama School of Law LL.M. Mr. Linn earned his LL.M. degree in Taxation from the University of Alabama School of Law in 2013; his Juris Doctor degree in from Hofstra University School of Law in 1999 and his Bachelor of Arts in Political Science from Binghamton University, State University of New York in 1996.

Mr. Linn is admitted to practice before the United States Tax Court and New York State Courts. He is a member of the New York State Bar Association, and has served as an Adjunct Professor of Continuing Education at CUNY Queens College.

Mr. Linn is a New York State Office of Court Administration Certified Court Evaluator and Certified Counsel to Guardian.

Mr. Linn has an AV Preeminent Martindale-Hubbell Peer Review Rating.

Attorney Advertising Eric W. Penzer Estate Litigation

Partner | 516-227-0618 | [email protected]

LOCATION: Uniondale

Eric Penzer is a partner concentrating in trust and estate litigation. His practice includes contested probate proceedings, fiduciary accounting proceedings, discovery proceedings, and other litigation related to estates and trusts. He is a frequent contributor to Farrell Fritz’s New York Trusts & Estates Litigation blog.

Mr. Penzer is a frequent author of articles on trust and estate litigation practice and lectures extensively on the subject. He is a member of the Executive Committee of the Trusts and Estates Law Section of the New York State Bar Association, a Chairperson of its Practice and Ethics Committee, and a former Chairperson of its Litigation Committee. Mr. Penzer is a member of the New York City Bar Association’s Trusts, Estates, and Surrogate’s Court Committee, and the Nassau County Bar Association’s Surrogate’s Court Estates & Trusts Committee.

Mr. Penzer has an AV Preeminent Martindale-Hubbell Peer Review Rating. In 2016, he was selected to The Best Lawyers in America. Mr. Penzer was selected for inclusion on the 2014 and 2015 Super Lawyers New York - Metro Edition list (Estate & Trust Litigation), having previously been included on the 2011 Super Lawyers Rising Stars list. In 2009, he was the recipient of Long Island Business News’ “40 Under 40” award, honoring Office professionals for their business leadership and community involvement. Uniondale He is a Vice President and member of the Board of Directors of The Safe Center LI, located 1320 RXR Plaza in Bethpage, a non-profit agency serving the victims of domestic abuse and child abuse. Uniondale, NY 11556-1320 He is also a member of the Board of Directors of the Long Island Elite, an organization Practice Areas dedicated to promoting the growth and development of Long Island’s business executives Estate Litigation by combining community outreach, fundraising for Long Island charities, mentoring, and Trusts & Estates professional networking. In 2015, Mr. Penzer received the Nassau County Bar Education Association’s Access to Justice Award for his pro bono work. Fordham University School of Law Mr. Penzer is a former intern to the Honorable Arthur D. Spatt, United States District Judge State University of New York at for the Eastern District of New York. He received his Juris Doctor in 1996 from Fordham Stony Brook University School of Law, where he was an Associate Editor of the Fordham Intellectual Property, Media & Entertainment Law Journal. In 1993, he received his Bachelor of Arts Degree from the State University of New York at Stony Brook.

Mr. Penzer is admitted to practice in the State of New York, in the United States District Courts for the Eastern and Southern Districts of New York, and in the United States Court of Appeals for the Second Circuit.

Attorney Advertising Wendy H. Sheinberg is a partner with the law firm of Davidow, Davidow, Siegel and Stern, LLP and concentrates in the areas of Guardianship, Elder Law, Special Needs Planning, Trust and Estate Planning and Trust and Estate Administration. She has presented at numerous seminars on Elder Law and Estate Planning, Senior Housing and on Probate and Estate Administration and has lectured for the New York State Bar Association, the Nassau County Bar Association and many other notable local civic and religious groups. Ms. Sheinberg has published articles in the New York State Bar Association Law Journal, the University of South Dakota Law Review, the NAELA Quarterly, Senior News and the Journal of the Nassau County Bar Association. Ms. Sheinberg has been interviewed and quoted in such notable publications and news services as U.S. News and World Reports, the New York Times, Newsday and Dow Jones Newswire. Background Ms. Sheinberg has been certified by the National Elder Law Foundation as a Certified Elder Law Attorney (CELA) and has completed the Guardianship Training at the Samuel Sadin Institute on Law of the Brookdale Center on Aging at Hunter College. She was selected as a Fellow of the National Academy of Elder Law Attorneys (NAELA). Selection as a Fellow is the highest honor bestowed by the Academy. Election as a Fellow signifies that his/her peers recognize the lawyer as a model for others, and as an exceptional lawyer and leader. Selection as a Fellow acknowledges the highest degree of commitment to serving older persons and people with special needs. Martindale-Hubbell recognizes Wendy H. Sheinberg as an AV® rated attorney. An AV® certification mark is a significant rating accomplishment – a testament to the fact that a lawyer’s peers rank him or her at the highest level of professional excellence.

Ms. Sheinberg has repeatedly been named one of the top elder law attorneys in the New York Metro area by Super Lawyers and one of the top women attorneys in the New York Metro area by Super Lawyers.

Associations Ms. Sheinberg is a member of the Special Needs Alliance and is a past member of the Board of Directors of the National Academy of Elder Law Attorneys and is a Vice President of the Long Beach Lawyers’ Association. She is a member the National Academy of Elder Law Attorneys (NAELA) the New York State Bar Association: Elder Law Section and a member of the Irish American Bar Association of New York. Ms. Sheinberg is admitted to the Bar in New York State and Connecticut and is admitted to practice in the United States District Courts of the Eastern and Southern Districts.

Like Wendy on Facebook at https://www.facebook.com/sheinberglaw and follow her on Twitter @wendysheinberg; learn more at www.Sheinberglaw.com MICHAEL J. SULLIVAN [email protected]

Michael J. Sullivan is an attorney at Novick & Associates.

Background Michael was born in Brooklyn, New York. He is a graduate of Colgate University where he earned his Bachelor of Arts in Political Science. While attending New York Law School, he served as Managing Editor of the Law Review. Michael earned his Juris Doctorate with honors in 1989. He received his Masters of Law in Taxation from New York University School of Law in 1998. Michael is admitted to the bars of the States of New York, Connecticut, New Jersey and the United States District Court for the Eastern and Southern Districts of New York, and United States Tax Court.

Michael joined Donald Novick in 2003. Since working with Mr. Novick, he has developed his practice in estate planning, probate and estate litigation, and contested accountings. By preparing and analyzing estate matters at the outset, Mr. Sullivan has been able to settle many estate matters expeditiously and has maximized our client's financial recoveries.

Practice Areas Michael concentrates his legal practice in the areas of Estate Planning, Estate Litigation, Probate, Taxation, Commercial Law, Trusts and Estate Administration.

Memberships Mr. Sullivan is an active member of the New York State and Richmond County Bar Associations. He is also a member of the New York State Bar Associations Committees on Practice and Ethics and Newsletters and Publications. FACULTY BIOGRAPHIES

Albany

JENNIFER L. ALLINSON Partner LaVelle & Finn, LLP, Latham

JENNIFER L. ALLINSON concentrates her practice on estate planning, estate administration and business succession planning. She also works and consults with property owners and their advisories on protecting land through the use of conservation easements and other tax advantaged strategies.

Ms. Allinson earned a Bachelor of Arts in Political Science and Philosophy from the University of Pittsburgh. She holds a Juris Doctor from Albany Law School and is admitted to practice in New York.

Before joining Lavelle & Finn, LLP, Ms. Allinson was a financial analyst for a large financial services company in Albany, New York.

Ms. Allinson is a member of the board of directors of the Estate Planning Council of Eastern New York, Inc., and a member of the New York State Bar Association ‐ Trust & Estates Section. JENNIFER M. BOLL Partner

[email protected] 518.433.2416

Jennifer focuses her practice on corporate, tax, and estate and business succession 677 Broadway planning matters. She advises privately held companies and individuals with respect Suite 301 to a wide range of corporate and tax matters, including mergers and acquisitions, real Albany,Albany, NY 12207 estate, financial transactions, and complex trust and estate matters. Areas of Practice In addition to her legal practice, Jennifer is a lecturer for the M.S. in taxation program at the University at Albany, State University of New York, where she Business Tax teaches courses on federal, state, and interstate taxation. She is also an adjunct Corporate & Business Law professor at Albany Law School, where she teaches courses on corporate tax, state Estates & Trusts and local tax, and estate planning. Family Business & Succession Planning Honors Mergers & Acquisitions Startups & Emerging Companies ● Multiple Sclerosis Society of Northeastern New York Leadership Award State & Local Tax ● Albany Business Review's 2014 40 Under Forty Award Tax Dispute Resolution

Experience Admissions

Jennifer has extensive experience handling a broad array of corporate and tax New York matters for her clients. Representative examples of Jennifer's work include: Connecticut Massachusetts ● Recapitalizing a client’s business entity and preparing all associated estate planning documents needed to allow for the orderly transfer of the client’s U.S. Tax Court businesses to the next generation U.S. District Court for the Northern District of New York ● Leading a team to assist a publicly held client in issuing a new class of preferred stock through a private placement Education ● Planning and implementing a stock repurchase program for a client with widely B.A., summa cum laude, Siena held securities College

● Handling legal and tax aspects of several trusts formed to maintain significant J.D., cum laude, Harvard Law School rental real estate holdings, charitable interests, and other business holdings

ALBANY BUFFALO NEW YORK CITY PALM BEACH SARATOGA SPRINGS TORONTO www.hodgsonruss.com

Attorney advertising. Prior results do not guarantee a similar outcome. Practice restricted to U.S. JENNIFER M. BOLL

● Successfully concluding a significant IRS audit and appeals hearing involving deductibility of passive losses

● Obtaining voluntary disclosure agreements/penalty abatements for clients with significant unreported New York State income and sales and use tax

● Settling a New York State tax controversy involving employee classification and out-of-state contractors

● Advising several clients in the construction industry and design professions regarding corporate and operational planning needed to qualify for New York State WBE and DBE certifications

● Acted as a testifying expert witness with respect to income tax issues in a litigated corporate dissolution matter

News

Hodgson Russ Snags 2 Tax Pros for Upstate NY Offices

Law360 , September 11, 2013

Jennifer M. Boll and Thomas J. Collura Join Hodgson Russ as Partners

September 9, 2013

Presentations

Albany Times Union Capital Region Women@Work Panel: Keys to Financial Success

Albany, NY, October 20, 2015

New York Council of Nonprofits Seminar: Living with the NY Nonprofit Revitalization Act - Practical Advice

Albany, NY, October 8, 2015

Affordable Care Act: 2015 Update for NYS Society of CPAs

August 24, 2015

2015 Tax Roadshow

July 15, 2015

Affordable Care Act: 2015 Update for Tax Professionals

Tuesday, June 2, 2015 & Wednesday, June 3, 2015

Managing Cyber Risk: A Primer for All Businesses

The Century House, 997 New Loudon Road, Latham, NY 12110, May 5, 2015

Schenectady County Bar Association Trusts and Estates CLE: Estate and Income Tax Update - The Year in Review

Scotia, NY, March 12, 2015

Association of Career and Technical Education Administrators Seminar: New York's Nonprofit Revitalization Act

Albany, NY, February 27, 2015

ALBANY BUFFALO NEW YORK CITY PALM BEACH SARATOGA SPRINGS TORONTO www.hodgsonruss.com JENNIFER M. BOLL

New York State Bar Association Seminar: The Non-Tax Lawyer's Guide to Tax Law

December 9, 2014

New York State Council of Educational Associations Seminar: NY Nonprofits - What You Need to Know About the NY Nonprofit Revitalization Act

October 24, 2014

Publications

Changes on the Horizon for the SBA 8(m) Women-Owned Small Business Program

Corporate & Business Law Alert, July 10, 2015

What to Expect in a New York Residency Audit

Hodgson Russ Publication, October 2014

New York’s Estate Tax System Undergoes Major Overhaul

JD Supra, April 4, 2014

Major Changes Expected to New York State’s Estate Tax System

JD Supra, January 28, 2014

Innocent Spouse Relief for Income Taxes: If at First You Don't Succeed

Capital District Women's Bar Association Newsletter, 2013

Marriage for Tax Sake

Capital District Women's Bar Association Newsletter, 2013

Once a Domicile in New York, Always a Domicile in New York - What Does it Mean?

Capital District Women's Bar Association Newsletter, January 1, 2012

Out of State Sales Tax Collection Obligations: Is Physical Presence Still the Standard?

CPA Journal, August 2008

Sarbanes-Oxley Creates Executive Stock Option Limits

Capital District Business Review, February 3, 2003

Sarbanes-Oxley Subjects CPA Firms to New Level of Oversight

Capital District Business Review, January 13, 2003

Professional Affiliations

● Harvard Law School Alumni Association

● Co-founder, Women Partners' Forum of the Capital Region

● American Bar Association Business Law and Taxation Sections

ALBANY BUFFALO NEW YORK CITY PALM BEACH SARATOGA SPRINGS TORONTO www.hodgsonruss.com JENNIFER M. BOLL

● New York State Bar Association Trusts & Estates, Business Law, and Real Estate Sections

● Past delegate, Women's Bar Association of the State of New York

● Chair, Capital District Women's Bar Association Legislative Committee

● Albany County Bar Association

● Columbia County Bar Association

Community & Pro Bono

● Siena College board of associate trustees

● Junior Achievement of Northeastern New York, Inc. board of directors

● Annual speaker, University of Albany Young Entrepreneur Program

● Lung Cancer Alliance advisory board

● Former co-chair, Community Cradle board of directors

● Former member, Governor's Capital Region Women's Advisory Council

ALBANY BUFFALO NEW YORK CITY PALM BEACH SARATOGA SPRINGS TORONTO www.hodgsonruss.com JulieAnn Calareso, Esq.

JulieAnn Calareso, Esq. is a principal of Burke & Casserly, P.C. She focuses her practice on elder law, wills and trusts, estate administration and probate, special needs planning, and corporation and business formation and succession planning.

Beginning in the spring of 2015, JulieAnn is serving as the Chair of the New York State Bar Association’s Elder Law and Special Needs section. JulieAnn also represents the New York State Bar Association on a state wide initiative formed in collaboration with the New York State Office for the Aging, the Office of Court Administration, and private groups seeking to evaluate the delivery of legal services in New York to the elderly and disabled, and charged with recommending changes to make New York’s legal system more accessible to that population.

JulieAnn serves on the Board of Directors of the Alzheimer’s Association of Northeastern New York’s, and has previously been honored with the Lisa Goldberg Memorial Award for outstanding commitment and service to that Board. She also serves as a member of the Board of Directors of Catholic Charities Senior and Caregiver Support Services, an agency under Catholic Charities of the Roman Catholic Diocese of Albany, New York. The focus of this agency is providing services to seniors and caregivers throughout the Diocese’s fourteen county region. JulieAnn is a former Director of Senior Services of Albany, and is a member of the Capital District Caregivers Coalition, where she works with other dedicated professionals to provide educational and supportive programming for persons providing care to others. She is a graduate of the Leadership Tech Valley Class of 2011, a joint leadership initiative of the Albany Colonie and Schenectady Chambers of Commerce.

JulieAnn was honored by the Albany-Colonie Regional Chamber of Commerce as the recipient of its 2009 Women of Excellence award in the Emerging Professional category.

She is a graduate of Albany Law School of Union University where she earned her Juris Doctorate, magna cum laude, having earned membership into the Justinian Honor Society for excellence in legal scholarship. She served as an Associate Editor of the Albany Law Review, and interned at the New York State Office of the Attorney General, Charities Bureau.

Before joining the firm, JulieAnn worked as an Appellate Court Attorney for the New York State Supreme Court, Appellate Division, Third Department.

Her undergraduate degree is from Fordham University, where, in 1994, she earned a Bachelor of Arts in Communications, cum laude, while participating in the Honors Program. Prior to beginning a career of law, JulieAnn worked in television and feature film production in New York and Los Angeles.

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Richard D. Cirincione is one of two managing shareholders with McNamee Lochner Titus & Williams, P.C. He joined the firm in 1993 and has been a shareholder since 2002. His practice is concentrated in the areas of estate planning, estate administration, estate litigation, and guardianship law. Richard provides planning for high net worth individuals, including the preparation of sophisticated estate planning devices. He has considerable experience forming and administering family entities, such as family limited partnerships and sales to defective grantor trusts, as well as creating various charitable planning vehicles. Richard handles all phases of the administration of estates and trusts, including the preparation of estate tax returns.

Richard is a frequent lecturer for continuing education programs for the Trusts and Estates section of the New York State Bar Association. He is AV Preeminent rated by Martindale- Hubbell®, has been included in The Best Lawyers in America® since 2013, and Super Lawyers® since 2015.

Richard is admitted to practice law in the states of New York and Florida. He is the former chairperson of the firm’s Trusts, Estates, & Elder law practice group. Prior to becoming an attorney, he worked as a Certified Public Accountant. Richard practices in both the Firm’s Albany and Clifton Park offices.

{M0978339.1 } Deborah S. Kearns Chief Clerk, Albany County Surrogate’s Court Albany County Courthouse, Room 123 Albany, New York 12207 (518) 285-8585

Deborah Kearns works for the New York State Unified Court System as Chief Clerk of the Albany County Surrogate’s Court. She started her legal career in private practice where she represented individuals and not-for-profit entities in estate, gift and income tax planning and most recently was on the faculty at Albany Law School. While at Albany Law School, she directed the Tax & Transactions Clinic and was responsible for the coordinated delivery of pro bono legal services through a faculty supervised clinical legal education program. In addition to her work in the clinic, she also taught Trusts & Estates and related courses, and lectured extensively on estate, gift and income taxation as well as on tax controversy matters. Deborah has been active in the New York State Bar Association throughout her career and currently serves on the executive committee of the Trusts and Estates Law Section as a Vice Chair of the Trusts & Estates Law Section’s Taxation Committee and as the Third Judicial District Representative. She was Chair of the Taxation Committee from 2007-2009 and served on the 2009 Ad Hoc committee working on the New York Power of Attorney Legislation. She is a member of the Capital District Women’s Bar Association and the Albany County Bar Association and is an adjunct faculty member at Albany Law School. Deborah is a summa cum laude graduate of Albany Law School and received her LL.M. in Taxation from New York University.

Cassandra A. Partyka Cioffi Slezak & Wildgrube PC Niskayuna

As an associate at Cioffi • Slezak • Wildgrube P.C., Cassandra works in the areas of estate planning and administration, elder law, real estate, business and corporate law. Her objective for clients is to customize legal services to fit their individual needs.

Cassandra’s prior experience was with her father’s law office. She had an internship with the New York State Department of Environmental Conservation and worked in the Vermont Law School Legal Clinic.

Cassandra received a B.A. in Psychology from the University of Pennsylvania. She also focused on global water issues, taking eight courses in this area and represented the University of Pennsylvania at World Water Forums in Stockholm, Sweden and Istanbul, Turkey. Cassandra was a varsity sabre fencer while at the University of Pennsylvania. She was recognized as First Team All Ivy, was awarded several letters, and participated as one of the top 24 women in the NCAA Finals. She studied abroad at the University of Queensland in Australia. Cassandra received her law degree and Masters in Environmental Law and Policy from Vermont Law School, cum laude, where she received an academic Excellence Award in Trial Practice, while serving as Co-Chair of the Women’s Law Group, was the Research Editor and Summaries Editor for the Vermont Legal Research Group and was a member of Phi Alpha Delta.

Cassandra is a member of the New York State, Saratoga, Warren, Montgomery, Schenectady and Adirondack Women’s Bar Associations. She has been involved in the Ronald McDonald House Fashion Show, which takes place every summer at the Saratoga Race Track since 2013, which is a major fundraiser for their facility for families. She has been selected to interview prospective students for the University of Pennsylvania.

Cassandra grew up in Charlton and presently lives in Glens Falls. She was excited to return home to the Capital Region to pursue her career while being close to family and friends. Cassandra enjoys traveling, cooking, arts and crafts and her fantastic dogs, Wookie and Teddie.

TRUST & ESTATE PLANNING ELDER LAW SPECIAL NEEDS ESTATE PLANNING

TARA ANNE PLEAT, ESQ.

“AV” rated by Martindale-Hubbell---the highest rating for expertise and ethics given by the independent rating service of the legal profession.

TARA ANNE PLEAT, Esq., co-owns the law firm Wilcenski & Pleat PLLC. She practices in the areas of special needs estate planning and administration, traditional estate planning and administration, long-term care planning, and elder law. Tara graduated cum laude from Albany Law School with honors in the Estate Planning concentration and earned her undergraduate degree from the State University of New York at Albany. She is admitted to practice in New York, Florida, and Massachusetts as well as the United States Tax Court and the U.S. Federal District Court in the Northern District of New York.

Tara is co- chair of the Special Needs Planning Committee of the Elder Law Section of the New York State Bar Association and is a member of the Taxation Committee of the Trusts and Estates Law Section. Tara is the vice-chair of the publications committee of the Elder Law Section of the New York State Bar Association which publishes the Elder and Special Needs Law Journal on a quarterly basis. She was recently elected as incoming Treasurer of the Elder Law Section of the New York State Bar Association. She is honored to be a member of the Special Needs Alliance, an invitation-only, national network of leading attorneys dedicated to the practice of disability and public benefits law.

Tara is the Immediate Past President of the Board of Directors of the Estate Planning Council of Eastern New York, and serves as vice-president of the Board of Directors of Domestic Violence and Rape Crisis Services of Saratoga County. In addition, Tara is a graduate of the 2006 class of Leadership Saratoga, sponsored by the Saratoga Springs Chamber of Commerce, and currently is a member of the Leadership Saratoga Advisory Board. Tara is a Member of the Board of Directors of AIM Services, Inc., a disability service organization based in Saratoga Springs, New York and recently joined the Board of Directors of the Wesley Foundation.

In the fall of 2012, Tara was appointed as an adjunct professor of law at Albany Law School, where she teaches a course in the spring semester on estate and financial planning for the elderly and individuals with special needs.

5 Emma Lane, Clifton Park, NY 12065 ∣ Phone: 518-881-1621 Empire Theatre Plaza, 11 South Street, Suite 202, Glens Falls, NY 12801 ∣ Phone: 518-409-8534 www.WPLawNY.com ∣ Email: [email protected] ∣Fax: 518-881-1622

Patricia J. Shevy, Esq. THE SHEVY LAW FIRM, LLC

7 executive Centre Drive Albany, New York 12203 Phone: 518-456-6705 Facsimile: 518-456-6709 www.shevylaw.com

FACULTY BIOGRAPHIES

New York City

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FACULTY BIOGRAPHIES

Rochester

Karin Sloan DeLaney Sloan DeLaney P.C.

Karin Sloan DeLaney is the principal attorney at Sloan DeLaney P.C. With nearly 20 years of experience in Trusts and Estates law, Elder Law, Special Needs Planning and Tax Law, Karin counsels clients in all aspects of estate planning and administration including the preparation of wills and trusts, estate tax planning, long term care planning and business succession.

Karin is a Syracuse native and a graduate of the State University of New York at Albany (B.A.), Western New England University School of Law (J.D.) and Syracuse University College of Law (LL.M. Taxation). She is a frequent lecturer and author of a variety of estate planning topics for the public and professionals.

A runner, triathlete and Syracuse University basketball fan, Karin enjoys life in Syracuse with her husband and children.

MARCY ROBINSON DEMBS

Barclay Damon LLP Syracuse

Marcy Dembs focuses her practice in the area of estate planning, trust and estate administration, and estate‐related litigation with a special interest in Supplemental Needs Trusts and the representative needs of the disabled. Marcy has been practicing for over 30 years throughout Central New York while maintaining a large presence in the North Country, furthering her commitment to families and business owners in New York. Marcy serves as Co‐Chair of the firm's Trusts & Estates Practice Area.

In addition to practicing in New York, Marcy is also admitted to practice in Florida and uses her insights to help clients take better advantage of estate tax laws. Marcy frequently speaks before groups of professionals including State bar attorneys, certified public accountants and financial planners, in addition to not‐for‐profit administrators which serve disabled individuals and their families. She also has offered legal insight on several Central New York television programs such as WWNY’s “Noon Newscast” and WCNY’s “Financial Fitness.”

From litigating assets wrongly removed from an estate by an agent using a power of attorney, to assisting farmers and business owners with succession planning and transfers, Marcy’s goal is to listen well and educate her clients so they can make informed decisions regarding their estate and business plans.

Marcy is a strong supporter of the Women's Forum. As a mother of two, having practiced since 1985, she has seen firsthand the importance of an effort dedicated to support women and help them find balance in their family lives and practice.

Representative Experience

Successfully used Constructive Trust theory to recover life insurance proceeds wrongly diverted from decedent's children to surviving spouse in violation of children's mother's separation agreement with decedent.

Successfully litigated to replace Trustee based on breach of fiduciary duty for lack of diversification of portfolio and excessive fees.

Created and funded numerous Supplemental Needs Trusts in Wills. Used post mortem judicial reformation and pursuant to regulations for inter vivos trusts to position disabled adults to qualify for critically needed governmental medical assistance.

Successfully defended Will contest by decedent's immediate family in favor of Will beneficiaries in litigation involving choice of law principals and complex issues of proof.

Routinely represents estate planning needs of non‐citizens addressing unique estate and gift tax ramifications of their status. R. Thompson Gilman Partner Woods Oviatt Gilman LLP,

Education Albany Law School, J.D. University of Vermont, B.A.

Bar Admissions States of New York and Florida

Profile Education Representative Matters Affiliations Tom Gilman is a Partner in the firm and Chair of the Family Wealth & Estate Planning Department, where his practice is concentrated in estate planning, trust and estate administration, probate and estate tax law.

Practice Areas

Asset Protection Planning Business Succession Planning Elder Law/Long Term Health Care and Medicaid Planning Estate & Trust Administration Estate & Trust Taxation Family Wealth Planning Florida Estate & Trust Practice Retirement Benefit Planning Special Needs Planning Charitable and Foundation Planning

Nancy Klotz is Vice President and Senior Trust Counsel with Tompkins Trust Company. She has over fifteen years of experience in private practice, advising individuals and corporate fiduciaries on sophisticated estate planning techniques, estate and trust administration, probate and tax law. At Tompkins, Nancy is responsible for developing estate planning strategies for clients. She works closely with clients’ legal, tax and investment advisors to design, implement and administer appropriate trust and estate plans.

Nancy received her B.A. degree from Yale College and her J.D. degree from the University of California, Los Angeles, School of Law, Order of the Coif. She is a member of the Executive Committee of the Trusts and Estates Section of the New York State Bar Association, the Executive Committee of the Trusts and Estates Section of the Monroe County Bar Association, the Estate Planning Council of Rochester, and the Planned Giving Advisory Council of the University of Rochester. She has lectured to both professional and lay groups on estate planning topics. 3/18/2016 Binghamton Law : Attorneys : Albert B. Kukol, Partner : Levene, Gouldin & Thompson, LLP : Lawyer

LGT Vestal Oﬃce 450 Plaza Drive Vestal, New York 13850 607‐763‐9200 main 607‐763‐9211 fax

Educaᤅon Admissions A.B., Anthropology, College of William & Mary (1975) New York Bar (1991) M.B.A., Finance, State University of New York at Binghamton (1977) Pennsylvania Bar (2010) J.D., magna cum laude, Albany Law School of Union University (1990)

Professional Background and Acᤅviᤅes Honorary Recogniᤅons Broome County Bar Associa뛕on New York State Bar Associa뛕on 2004 President's Pro Bono Service New York State Bar Associa뛕on (Sec뛕on on Trusts and Estates, Aorney Award Member and Lecturer, Sec뛕on on Elder Law, Member and Lecturer‐ Selected for inclusion in "The Best Lawyers in America®" in the area Execu뛕ve Commiee) of Elder Law CERTIFIED FINANCIAL PLANNER ™ Cer뛕fica뛕on Selected for inclusion in New York Super Lawyers, Upstate Edi뛕on Academy of Special Needs Planners Financial Planning Associa뛕on of the Southern Tier of New York, Inc. (Member and Director) To Trust or Not to Trust ‐ Speaker to the Broome County Bar Associa뛕on, Nov. 5th, 2015 Community Acᤅviᤅes The Shore Owners Associa뛕on of Chase's Lake, Inc. (Director) NYSARC, Inc. Broome‐Tioga County Chapter, dba Achieve‐ Guardianship Commiee Publicaᤅons Co‐Author, "Creditor's Claims ‐‐ Do They Die With the Debtor?" NYSBA Journal (Feb. 2006) p. 18 Co‐Author, "The Conflic뛕ng Rights of Creditors and Beneficiaries in a Decedent's Estate ‐‐ An Examina뛕on of the Laws of New York, New Jersey and Connec뛕cut" (2006)

Aorneys: Quick Link file:///G:/CLESEM/kfrancis/ALL%20PROGRAMS/SPRING_2016/4_T+E%20Wills/2016%20Coursebook%20and%20CLE%20Notepad/BIOS/KUKOL.html 1/2

433 3/18/2016 Pullano & Farrow: Jason Livingston Trusts & Estates

Home Our Team Services Contact Employment

JASON LIVINGSTON

PRACTICE AREAS Asset Protection Planning Family Wealth Planning

Retirement Benefit Planning

Estate and Trust Administration

Business Succession Planning

Charitable and Foundation Planning

Special Needs Planning

BAR ADMISSIONS PHONE New York 585.730.4773 main 585.730.9065 direct PROFESSIONAL EXPERIENCE 888.971.3736 fax Jason Livingston is a member of the Law Offices of Pullano & Farrow PLLC. He concentrates his practice in the areas of Estate Planning, EMAIL Business Succession Planning, Long Term Care Planning, Estate [email protected] Administration, Trust Administration, and Guardianship Petitions.

MAIL Mr. Livingston received his J.D. degree from the State University of 69 Cascade Drive Suite 307 New York at Buffalo Law School and his B.A. degree, magna cum laude, from East Carolina University. Rochester, New York 14614

EDUCATION State University at Buffalo Law School, J.D. East Carolina University, B.A.

PROFESSIONAL AFFILIATIONS Mr. Livingston is an active member of the Monroe County Bar Association and New York State Bar Association. He is also a member of the Trusts and Estates Section of the Monroe County Bar Association. Mr. Livingston is an instructor for the Estate Planning Module of the Certified Financial Planner (CFP) Certification Course.

Mr. Livingston was a member of the Rochester panel for the New York State Bar Association course entitled “Probate and the Administration of Estates.”

COMMUNITY INVOLVEMENT Board Member of the Epilepsy Foundation of Greater Rochester

Board Member of the United Way of Ontario County Endowment Fund

Committee Member for the Lollypop Farm Planned Giving Council

Committee Member for the Counselor’s Cup Annual Tournament

Active participant in the Volunteer Legal Services Project for the Rochester area 434 http://www.lawpf.com/#!jasonlivingstonesq/cobq 1/2 Rachelle H. Nuhfer, Esq. Lacy Katzen LLP Rochester

Associated Practice Areas: Estate and Trust Planning; Business Succession Planning; Trust and Estate Administration; Business and Corporate Law; Trust and Estate Litigation.

Rachelle works closely with clients to understand the clients’ needs and to develop a strategic estate plan that best protects the clients’ assets while achieving the clients’ planning objectives. Rachelle counsels clients in all estate planning matters including the preparation of wills, trusts, powers of attorney, health care proxies, and beneficiary designations.

Rachelle also counsels clients regarding various business and corporate law matters, including formation and structuring of business entities, mergers and acquisitions, and succession planning.

Before joining Lacy Katzen LLP, Rachelle spent two years as an Appellate Court Attorney with the Appellate Division, Fourth Department, where she handled both civil and criminal appeals.

Education: University at Buffalo Law School (J.D.), Summa Cum Laude;

St. Bonaventure University (B.A.), Summa Cum Laude.

Admissions: New York State Bar

Florida State Bar

Professional and Community Affiliations: Rachelle is a member of the New York State Bar Association, the Monroe County Bar Association, the Greater Rochester Association for Women Attorneys, and the SUNY Buffalo Law Alumni Association.

Rachelle is also a volunteer with the Volunteer Legal Services Project of Monroe County.

435 Anthony T. Selvaggio: Mr. Selvaggio is a 1994 graduate of the State University of New York at Buffalo, School of Law and a 1991 graduate of St. John Fisher College. He concentrates his practice in the areas of wealth transfer planning, the drafting of Wills and trusts, and representing individual and corporate fiduciaries in the administration of estates and trusts. He has over a decade of experience in counseling clients in sophisticated planning techniques used to minimize estate, gift, and income taxes while addressing his clients’ personal and family estate planning goals. He practices with the firm of Jill M. Cicero & Associates in Rochester, NY.

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