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Estate Planning Overview & Basic Will Drafting Presented by Richard D. Cirincione McNamee Lochner Titus & Williams, P.C. 677 Broadway • Albany, NY 12207 Direct: 518‐447‐3389 • Fax: 518‐867‐4789
646 Plank Road, Suite 206 Clifton Park, New York 12065 518‐383‐9200 518‐867‐4789 facsimile [email protected] www.mltw.com
Estate planning considerations Intended distribution scheme Tax implications Benefits of avoiding probate Medicaid planning for beneficiaries Contingencies that the client didn’t think about Consider the title of assets and beneficiary designations
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Estate planning considerations Is there a Waiver of the Right of Election Will the surviving spouse be filing for the elective share Will there be a Will contest. Prenuptial agreements Divorce obligations Trust for pets EPTL 7‐8.1 How to handle charitable intentions
Annual exclusion Annual exclusion is indexed for inflation For 2016, IRC section 2503, allows every individual to gift up to $14,000 per year per person. Spouses can combine to make annual exclusion gifts of $28,000 per year per person.
Estate tax exemptions Federal exemption is $5 million, indexed for inflation. For 2016 the exemption is $5,450,000 The New York State estate tax exemption is $4,187,500 as of April 1, 2016 Federal law allows portability for the unused exemption amount to be passed to the surviving spouse, but no similar New York provision. New York has no gift tax, but gifts made within 3 years of death are brought back into the estate.
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Title on deeds Don’t believe your client You cannot assume real estate is owned jointly. Look at the deed.
Tenancy in common Tenancy in common – a deceased’s interest in tenancy in common property is devised pursuant to the testator’s will, or intestacy. Upon probate, except in certain circumstances, title is vested in the beneficiary.
Joint tenancy Joint tenancy –equal co‐ownership with rights to receive deceased co‐owners interest without probate Joint tenancy can be unilaterally severed into a tenancy in common
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Tenancy by entirety Tenancy by entirety –only between spouses; automatic survivorship right. If deed is silent and the grantees are husband/wife, it is a tenancy by the entirety. One spouse alone cannot sever. Good for asset protection
Convenience accounts
Banking law 678 Account in the name of a depositor and another person to be paid or delivered to either "for the convenience" of the depositor Not considered as having been made as a gift of one‐ half the deposit to the other person On the death of the depositor, the other person shall have no right of survivorship in the account. Be careful – look at bank signature cards
Joint bank accounts Banking law 675 – rebuttable presumption that a bank account jointly owned results in undivided equal shares. Presumption applies to bank accounts and brokerage accounts As a result of the presumption, the burden shifts to the party claiming fraud, undue influence, or lack of capacity or submission of direct or circumstantial proof to support that the joint account was established as a convenience and not with the intent of conferring a present beneficial interest.
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Totten trust accounts Totten trust accounts –in the name of depositor “in trust for” another. Depositor is the exclusive owner of the account during his/her lifetime. Title automatically vests in the beneficiary at depositor’s death. Can be revoked by complete withdrawal of assets in the account or by specific reference in a Will – need to identify the named ITF beneficiary and the financial institution.
SCPA 2307‐a disclosure Disclosure statement executed when Will is signed Signed before one witness. Must be filed with probate petition, or attorney/executor will be limited to ½ commissions if was draftsperson of Will or affiliated with draftsperson. Use language in statute. Fees and commissions are fixed by Court.
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Need complete information Family tree information Asset information Review title information Is real estate owned in another state Review any Buy‐Sell / Shareholder agreements
The default estate plan may be inconsistent with Testator ’s intent
By intestacy By contract i.e. beneficiary designations By title on deeds Title on bank and brokerage accounts Reference materials have checklists
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Intestacy ‐ EPTL 4‐1.1 If survived by a spouse and no children – 100% to spouse If survived by a spouse and children $50,000 plus half to spouse & half to children If no spouse but issue – issue by representation If parent(s), all to the parent(s) If issue of parents, issue of parents by representation Grandparents, or issue of grandparents, one‐half to parental grandparents by representation and one‐half to maternal grandparents by representation Issue of grandparents shall not include issue more remote than grandchildren of such grandparents.
Intestacy continued Great‐grandchildren of grandparents, one‐half to the great‐grandchildren of the paternal grandparents, per capita, and the other one‐half to the great‐grandchildren of the maternal grandparents, per capita; provided that if the decedent was not survived by great‐ grandchildren of grandparents on one side, the whole to the great‐grandchildren of grandparents on the other side, in the same manner as the one‐half.
Without a will No ability to waive a bond. No ability to choose who will administer the estate May force a court supervised guardianship for minors
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Be an advisor to your client Best tax advice may not be consistent with client wishes Consider lifetime vs testamentary gifts Beneficiary of IRA or 401(k) should not be the estate or a minor beneficiary Life insurance beneficiaries should never be a minor Consider avoiding an accounting proceeding Sole executor / sole trustee Small % gift to charity
Will Execution Ceremony Follow same procedure all the time Governed by EPTL §3‐2.1 Must be signed by Testator at the end Signed in the presence of 2 witnesses Testator must publish (declare) document as his Will Witnesses must attest within 30 days
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Testamentary Capacity For purposes of Will execution is knowing generally, without prompting: Nature of the act performed (Will execution); Nature and extent of assets to be disposed of; Names and relationship of persons who are the “natural objects of one’s bounty” (distributees / prior beneficiaries)
Specific Bequests Specific bequest or devise is a gift of a specific item of property that can be easily identified and distinguished from all other property in the testator’s estate. Given the specificity of the gift, another item cannot be substituted to satisfy the bequest If the item no longer exists—ademption
Specific Bequests I give to my daughter, Kelsey all of my shares of stock in General Electric Company. Because of mergers, recommend adding “or its successor (whether by change of name, consolidation, merger or otherwise), owned by me at the time of my death.”
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General Bequests General bequest: A general bequest is a testamentary gift that is paid out of the general assets of the estate. Example: “I hereby give $5,000 to my son, Tyler.”
Residuary Bequests I bequeath all the rest, residue and remainder of my estate to …
Abatement EPTL 13‐1.3(c) the first dispositions to abate are:
Distributive shares in property not disposed of by Will (intestacy) Residuary dispositions General Dispositions Specific Dispositions
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Ademption An item which was specifically bequeathed is no longer in existence as of the date of death.
Disqualified from inheritance All provisions for a divorced or legally‐separated spouse are revoked (See EPTL 5‐1.4) Includes appointment as Executor Does not apply to relatives of the divorced spouse There is a bill in the Assembly that would extend those disqualified from inheritance to include family members of ex‐spouses automatically, with a rebuttable presumption. Murderer of decedent (Matter of Covert, 97 NY2d 68 [2001], Riggs v Palmer, 115 NY 506 [1889].
Survivorship Requirements • EPTL 2‐ 1.6 – 120 hour survivorship provision (5 days) unless the Will says otherwise. • May want to consider a longer survival provision because if death of testator and beneficiary are close in time, it could result in an inconsistent disposition scheme. • i.e. I give my residence to x, provided, she survives me by at least 20 days.
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EPTL 3‐3.3‐‐ Anti Lapse Instruments executed on or after 9/1/1992. Whenever a testamentary disposition … is made to a beneficiary who is one of the testator's issue or a brother or sister, and such beneficiary dies during the lifetime of the testator leaving issue surviving such testator, such disposition does not lapse but vests in such surviving issue, by representation.
Sample simultaneous death clause If my said spouse and I shall die under such circumstances which render it difficult to determine which of us predeceased the other, I direct that my estate be administered as though my wife survived me.
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In terrorem clauses From Latin for "in fear" A provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be cut off. Intended to discourage beneficiaries from challenging a Will. If the Will is challenged and found to be invalid, then the clause also fails. Strictly construed Some states do not enforce for being against public policy i.e. Florida
Sample no contest clause Each and every provision of this Will is made on the condition precedent that each of the beneficiaries shall accept and agree to all of the provisions of this Will and the provisions of this Article are an essential part of each and every such benefit.
No contest clause (continued)
If any individual beneficiary for whom any provision is made in this Will, whether directly or indirectly (hereinafter called "such Contestant"), shall institute, maintain or join in … or be in any way, directly or indirectly, instrumental in or standing to benefit from the institution or maintenance of, any action or proceeding in any court, for the purpose of preventing the probate of this Will, I HEREBY DIRECT (i) that all provisions, dispositions and appointments in this Will for the benefit of such Contestant are revoked; (ii) that for the purposes of construing every provision of this Will any such Contestant shall be conclusively deemed to have predeceased me, and shall receive no part of the principal or income of my estate, and (iii) that such benefits shall be paid as if such individual Contestant had predeceased me or had never been born without surviving issue.
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Will provisions to consider If Testator owns an S‐Corporation stock, you should have provisions to ensure that the beneficiaries qualify as a S‐Corporation shareholder Power to continue business Power to make elections i.e. if IRA is payable to a Trust under the Will to pay out required minimum distributions. Power to hold closely held stock and not to diversify. Give Trustee the power to appoint a successor.
Other Will provisions to consider Give corporate fiduciaries the power to be paid in accordance with their published fee schedule. Give beneficiary the power to remove and replace Trustee, but recommend only to allow replacement with a professional fiduciary. EPTL 11‐1.7 – its against public policy to have an exculpatory clause in a testamentary instrument seeking to absolve executors and testamentary trustees from liability for the failure to exercise reasonable care are void
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Spendthrift clause Created for the benefit of a beneficiary usually because he or she is unable to manage money and spending prudently. Permits an independent trustee to have full authority to make all determinations as to how the trust’s funds will be expended for the benefit of the beneficiary. Creditors of the beneficiary of the trust usually cannot access nor attach the trust’s funds. The purpose is to prevent a spendthrift beneficiary from using a potential gift as security for credit on a speculative investment.
Spendthrift provisions Lifetime trust with income & principal for spendthrift’s health, support and education (or in Trustee’s discretion). Lifetime protection from divorce and creditors.
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Sample spendthrift clause Neither any income nor any principal interest of this trust, while said interest is in the hands of the Trustee and before said interest or any part thereof is actually paid or delivered to the beneficiary, shall be subject to any voluntary or involuntary anticipation, encumbrance, alienation or assignment, either in whole or in part, nor shall such interest be subject to any judicial process to levy upon or attach the same for or on behalf of such person's creditors or claimants, nor shall any portion of this trust be subject to any applications or allowances by any court pursuant to EPTL Section 7‐1.6, or any similar or successor provisions of law.
Essential Provisions in a Will 1. Identify the Testator by name and residence 2. Direct payment of debts, funeral & administration expenses 3. Include a provision for distribution of tangible personal property as well as the method for division. 4. Residuary clause 5. Appointment of fiduciaries: guardians for infants, executor, trustee – include successors 6. Consider waiving bonding requirement 7. Power in Trust for minors and incompetents
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Will provisions to consider 1. Charitable bequests – consider fixed gift instead of small percentage of the residue 2. Exercise of power of appointment 3. Remote contingency
Other Provisions to consider in a Will 1. Consider a simultaneous death clause 2. Consider survivorship period for beneficiaries 3. A tax clause may be appropriate. The default provision for payment of tax is “apportionment” ‐ EPTL§2‐1.8 4. Consider use of a family statement to identify distributees, to explain exclusion of distributee
Sample tax apportionment clause All estate, inheritance, transfer, legacy, succession or other similar taxes and duties and any interest or penalties thereon payable on any property which shall pass under the provisions of this my Will, or any other property which shall constitute a part of my taxable estate, whether or not passing under this Will, shall be paid first from Article "FOURTH" if my wife files a qualified disclaimer, otherwise out of my residuary estate without apportionment.
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Sample tangible personal property specific bequest I bequeath all of my tangible personal property (excluding cash and bearer bonds) together with all policies of insurance thereon insuring said articles of personal property against loss by fire, theft, accident or other casualty, and also the net proceeds of any claims against any insurance company or person or persons arising out of or connected with any such loss, destruction or damage of any of said property, to my wife, PAMELA, if she survives me, or if she does not survive me, then to my children who survive me. My children shall divide said property in as nearequalsharesaspossibleastheymayagreeamong themselves. In the event my said beneficiaries are unable to agree upon the division of any item(s) within six months after my death, said item(s) shall be sold with the proceeds distributed equally among them.
Review title of assets The best will is worthless if every asset of the Testator is jointly owned or beneficiary designated. Consider whether life insurance, IRAs or qualified plans should pass through the Will. (A must when minors are intended beneficiaries .)
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5/5 power Crummey beneficiary has the right to withdraw property from the trust before it lapses. Constitutes a general power of appointment since it can be exercised in favor of the beneficiary (IRC 2041). The exercise or release of a general power is deemed a transfer, and any amount that is subject to the withdrawal as of death will be included in beneficiary's estate.
Sample 5/5 power My wife shall have the further right to withdraw from the trust, in December of each year, the greater of Five thousand ($5,000.00) Dollars or five percent (5%) of thevalueofthetrustvaluedatthetimeofwithdrawal. Such right shall be non‐cumulative and shall be exercised by my wife serving on the Trustee, in December of any year that this trust is in existence, a notice of withdrawal, specifying the amount and specific type of property being withdrawn.
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Life insurance • Often misunderstood by clients • It is included in the taxable estate • It is not subject to income taxes • Often the largest asset in an individual’s estate
Life insurance
If have minor beneficiaries or disabled beneficiaries, do not want the proceeds to be distributed to them. Need a custom beneficiary designation. Make sure that the beneficiary designation is approved by Insurance Company. Example ‐‐ “to the Trustee of the Trust created under Article FIFTH of my Last Will & Testament dated ___. Not subject to creditors claims if paid directly to beneficiary vs paid to the estate.
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Insurance Trusts . Must be irrevocable. . Ifthetrustbuysthepolicy,thepolicyproceedsarenot subject to estate tax. . If an existing policy is transferred to the trust, as long as the grantor lives at least 3 years from the date of the transfer to the trust, the proceeds will not be subject to estate tax.
Insurance Trust Disadvantages Cost of preparing the trust agreement. Trustee’s commissions. Crummey letters. If the insured dies within 3 years … its included in his/her estate unless it was purchased in the first instance by the Trustee Transfer of policy to the trust is a gift equal to cash value of policy. Gift tax return may be required.
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Crummey Powers Crummey vs. Commissioner, 397 F.2d 82 (9th Cir. 1968) Gift to trust to pay life insurance premiums must be a “present interest” to qualify for grantor’s annual exclusions of (currently $14,000 per donee per year). Trust beneficiaries are given powers of withdrawal over the contributions. Crummey power holder must have a reasonable time within which to exercise Crummey withdrawal right. IRS has advised that a 30 day period is reasonable & disapproved a 3 day period & 4 day period. Power holder must have a significant beneficial interest in the trust property (Crummey demand only does not qualify).
Questions?
Richard D. Cirincione McNamee Lochner Titus & Williams, P.C. 677 Broadway • Albany, NY 12207 Direct: 518‐447‐3389 • Fax: 518‐867‐4789 646 Plank Road, Suite 206 Clifton Park, New York 12065 518‐383‐9200 518‐867‐4789 facsimile [email protected] www.mltw.com
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