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AN INSIDER’S GUIDE TO LIVING TRUSTS IN NEW YORK: PART 1 OF 3

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A living trust allows the person creating the trust to set aside money or property within the trust for the benefit of others by appointing a trustee to administer the trust and ensure the trust property is distributed to the beneficiaries. If you are the person creating a living trust, you are known as the grantor, owner or settlor of the living trust. A living trust is also known as a revocable inter vivos trust.

A testamentary trust, on the other hand, becomes operative after your death, pursuant to your will. Testamentary trusts typically go through probate. Aliving trust earns its name from the fact that you as the grantor of the trust created it while you were alive and it becomes effective before your death. After your death, your living trust may continue to operate as long as you comply with the New York Estates, Trusts and Powers Law when creating one.

Your attorney may also decide to create a “pour-over” will that allows any other property to pour-over into your trust after your death. However, the property that may pour-over from your will into your living trust will still have to go through probate. It typically becomes public record as soon as your personal representative or trustee submits it for probate. In this case, your living trust and your will become part of the New York Surrogate Court’s public records accessible by public request.

Check in with us tomorrow to read Part 2 of An Insider’s Guide to Living Trusts in New York.

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After reading the first part of this three-part series, you now have a basic understanding of why a lifetime gift may reduce an estate’s federal income tax liabilities. Now, I will cover how you can further reduce your estate’s tax liabilities. The Internal Revenue Service (IRS) gives each donor (gift giver) a tax exemption of $13,000 annually for a lifetime gift made to each donee (gift recipient). However, the IRS allows spouses to make gifts together and add their exclusions together. In other words, if you are married, you and your spouse can make an annual gift of up to $26,000 to each donee by combining your annual gift exclusion. Thus, if you have three children, you and your spouse can give each of your children up to $26,000 without triggering federal gift taxes for gifts made on or after Jan. 1, 2009. You can see how this will have the effect of reducing your income tax liabilities imposed on your estate after you die. Furthermore, your children may benefit more from a current gift than they would a future gift.

According to the IRS, donors are typically responsible for paying federal gift taxes. Thus, if you gave someone a gift that exceeded the amount of the annual gift tax exclusion, the person receiving the gift is not responsible for paying the income taxes on the value of his gift. Instead, you are responsible for paying the income taxes absent a special written agreement between you and the recipient.

This blog is part 2 of 3 on how Federal Gift Taxes cab reduce an estate’s tax liability. Tune in to our blog tomorrow to read Part 3.

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Federal gift tax laws play an integral role in reducing an estate’s income tax liabilities. As a taxpayer, making lifetime gifts can reduce your estate’s gross tax liabilities since these gifts are not included as part of your gross estate at your death in most cases. According to the federal Internal Revenue Code, a gift is one in which real or personal property, cash or any other type of property is given away without consideration or payment in return. A lifetime gift is one in which you retain no other control and is complete at the time of your death.

Each taxpayer is able to exclude up to $13,000 in annual gift taxes. This means that neither the gift recipient nor the gift donor pays federal income taxes for gifts of up to $13,000. The annual gift exclusion applies to gifts of up to $13,000 made to each done. This means that if you have three children, you can give each child a cash or property gift of up to $13,000 per year without paying federal income taxes. As you can see, making a lifetime gift may make sense since it will reduce your federal estate taxes, which is important in estate planning. Your beneficiaries will not have to pay federal income taxes on property given away while you were alive. By giving your children money now, you can help them save money on estate income taxes after your death.

This blog is part 1 of 3 on how Federal Gift Taxes cab reduce an estate’s tax liability. Tune in to our blog tomorrow to read Part 2.

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In the last blog, we covered the history of the United States Department of Veterans Affairs (VA) and the types of benefits it administers to veterans and their families. A historical overview may help you understand your military estate planning needs.

In addition to providing pension, health care, indemnity benefits and survivorship benefits, the administration provides other types of benefits. The VA provides burial benefits, including giving certain family members a burial allowance and the privileges and rights to bury their loved ones in national cemeteries. Because of the extensive benefits the VA provides surviving family members and spouses of veterans who served our country and in doing so, gave up their lives, veterans and active service members should understand their rights to these benefits as part of their overall estate planning.

The VA distinguishes between service-related deaths and non-service-related deaths when determining the amount of the burial subsidy allowance to eligible families. For families of service members who died in-service or after sustaining a service-related injury, the VA’s burial allowance gives eligible family members up to $2,000 each to pay for their burial expenses for deaths that occurred on Sept. 11, 2001 or after that date. For deaths that occurred before Sept. 11, 2001, the VA’s burial allowance is limited to $1,500 for each service member. Additionally, the VA pays a portion or may pay for all transportation costs incurred by family members who buried their service members in a national cemetery. There are 131 national VA cemeteries. For non-service-related deaths, the VA caps its burial allowance at $700.

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To create a valid will in New York, you must comply with the New York Estates, Powers, and Trusts Law or “EPTL.” The New York EPTL governs all wills and trusts drafted by New York residents. Once your executor or custodian probates your will, the New York Surrogate’s Court Procedure Act or “SCPA” govern the procedural parts of your estate administration. Other various state, federal and common laws may apply to your will. Generally, the state statute governs most aspects of wills and estates in New York.

What do you need to do to create a valid will in New York? At a minimum, your will must be in writing, and you must comply with the statutory testamentary formalities established by the New York EPTL. In very limited situations, an oral will may be valid, but because of the limitations, we recommend drafting a written will. You must also sign your will in front of two independent witnesses who will also sign your written will. You and your witnesses will include addresses in your will and participate in a “will signing ceremony.” During the ceremony, you will state that you are signing your will. According to the NY EPTL, you must be at least 18 years old and legally competent to sign a contract or will. This means that you are of sound mind and legally capable of understanding that the document that you are signing is your will.

Check out our blog tomorrow to read Part 2 of What are the Necessary Ingredients of a Valid Will.

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When creating your estate plan, you will likely see many legal terms that may confuse you. It’s important to understand what these terms mean so that you can create a plan that fits your needs and so that you understand how your plan works. We’ve taken the time to define some of these terms so that you can better understand the estate planning process. Take a look at the information below to learn more. If you have any questions, or if you’re ready to start creating your estate plan, contact an estate planning attorney.

Estate – This includes the decedent’s property, including real estate, personal property, and other assets that are owned and controlled by the decedent at the time of his or her death.

Beneficiary – An individual who derives benefit from the creation of a trust, proceeds of insurance policy, or property designated by a will.

Will – A legal document that an individual uses to state his or her wishes on how property will be divided after death. It also discusses who will care for his or her minor children (i.e. guardian) and who will handle estate affairs after his or her death (i.e. executor.)

Trust – A legal arrangement (i.e. contract or agreement) in which an individual gives control over the assets held in the trust to a trustee in order to benefit the trust’s beneficiaries.

Intestate – A person who dies without leaving a will is said to have died intestate. In this situation, the individual’s state laws (i.e. New York) and the courts will determine how his or her affairs are handled.

Probate – The legal process that determines the validity of a will and administers an estate until all of the property is distributed.

These terms will help you better understand your own estate planning. If you have any additional questions, or if you’d like to begin discussing your estate plan needs, consult with a qualified estate planning attorney.

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If you’ve been putting off your estate plan, you’re leaving yourself unprepared and unprotected. Many people put off planning because of anxieties, other commitments, or because they feel there is no need for planning. However, estate planning is extremely important; just look and see…

  • Without an estate plan, your assets will be distributed to beneficiaries based on your state laws. This may mean that your assets are given to the wrong people. If you want to control who receives your assets after your death, an estate plan is necessary.
  • No plan means that you’re unable to appoint a guardian for the care of your children. Instead, the court will determine who raises your children if you can’t.
  • Without a plan in place, you won’t be prepared for medical emergencies. This means that you will not have a loved one assisting you and helping to make important medical decisions on your behalf. You’re loved ones will also not have the access they need to handle your financial affairs on your behalf. No access and no authority mean that court will intervene.
  • Without a plan, your family may be left to struggle to pay for everyday expenses and past debts. With a plan, you’re able to purchase life insurance coverage so that your family doesn’t struggle to find a way to replace your income.
  • If you choose not to plan, you will have no control over the future. This includes being unable to plan for long term care costs, not having the option to appoint loved ones to help you with your estate affairs, and having no say in how your funeral arrangements are handled.

Now is the time to create your estate plan. If you have any questions, or if you’d like to begin creating your estate plan, consult with a qualified estate planning attorney.

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Some clients ask whether avoiding probate also avoids the federal estate tax. Both probate and the federal estate tax deal with your estate, but avoiding one doesn’t avoid the other. To answer the question, if you avoid probate, you don’t necessarily avoid the federal estate tax.

What is Probate? What’s the Federal Estate Tax?

Probate is the process of validating a will, if there is one, and settling an estate. Probate assets are all those assets that the decedent owned in his or her individual name, but didn’t have a beneficiary designation.
Examples would be a bank account in an individual’s name or a house in an individual’s name.

Examples of NON-probate assets include assets owned as joint tenants with right of survivorship (with a spouse or another individual), life insurance, retirement accounts, and annuities.

The federal estate tax is a tax on everything an individual owns at death, regardless of whether the asset goes through probate, or not.
Examples of assets that are subject to the federal estate tax include all assets you own such as bank accounts, investment accounts, retirement accounts, a house, and annuities, no matter how you own them. If you have a right to them or control them in some way, those assets are subject to the federal estate tax.

Although avoiding one, doesn’t necessarily mean that you avoid the other, both probate and the federal estate tax can be avoided, when you work with a qualified estate planning attorney.