Articles Posted in Estate Planning

For most millennials, the thought of taking responsibility for end-of-life financial planning is a daunting if not unfathomable task. Estate planners acknowledge the hurdle between personal financial planning and estate or trust formation for purpose of end-of-life distribution of assets seems far off for younger clients until they are informed about rules of intestate succession related to default transfer of wealth without their input.

Estate Planning Reduces Risk During Probate

Without a last will or testamentary documents indicating to whom financial and non-financial assets should be distributed after your death, New Y0rk probate rules of intestacy require that a court names an estate executor to administer distribution to beneficiaries. In New York, laws of intestacy dictate when no will is present, the closest living relatives are designated as “distributees” by the court. In most cases, intestate succession gives rights to a spouse and children, followed by the parents of a deceased.

The release of Stormy Daniels’ memoir, Full Disclosure by St. Martin’s Press is a landmark case of a legal matter post the 2006 Lake Tahoe meeting with now President Donald Trump.  The drama ensuing from the execution of a Non-Disclosure Agreement before the 2016 presidential election, has taught an inadvertent lesson about oral disposition of estates and the limited enforceability of nuncupative will formation within federal and state laws of probate.

Cohen’s Admission Under Oath

Paid $130,000 by Trump’s attorney, Michael Cohen, Daniels’s discusses the request for non-disclosure about the 2006 encounter with President Trump in her book. The final chapters focus on the federal court review of the details to the Non-Disclosure Agreement she argued were invalid – a claim disparate from the allegation that she felt intimidated by Cohen in her memoir. The story reported by the Wall Street Journal in January 2018, revealed the details of the federal court case, including Cohen’s admission to making the payment under oath. Further addressed in an interview on Anderson Cooper’s CBS broadcast television show 60 Minutes, Daniels’ expressed concern and fear about threats she claimed she received on the air.

The final step in a three (3) part series, advanced wealth and estate transfer planning allows an estate owner to shelter assets from estate tax. Strategies to reduce taxation and other penalties that may otherwise be assigned to distributions after an estate holder’s death are a core element of any professional estate planning strategy. Sales to Intentionally Defective Grantor Trusts (IDIT Sale) and Grantor Retained Annuity Trusts (GRATs) and are two common estate planning techniques used for financial control estate assets designated for transfer.

Tax Sheltering Assets Before and After Death

Most asset transfers from an estate while an estate holder is still alive fall under federal Internal Revenue Service (“IRS”) gift tax rules. The IRS applies the same rates of taxation to both gift and estate reporting of assets. If the value of gifted property will likely increase between date of the gift and date of a decedent’s death, “discounting” (i.e. freezing) the value of an asset so that it does not appreciate will enable a beneficiary to avoid transfer taxation.

Business continuity and financial planning go hand in hand when forming an estate to suit your needs during life, and in the interests of beneficiaries after death. Entrepreneurs and Founders who have formed a successful business have a stake in transfer of the assets to their estate or trust for future sale or distribution of proceeds. The second of a three (3) part series, the business continuity and share transfer planning process focuses on the importance of the buy-sell agreement and life insurance coverage to protect an estate holding business assets from risk.

Buy-Sell Agreements Protect Share Transfer

Many business owners consider a buy-sell agreement for transfer of business assets to an estate, which is a contractual agreement of “right of first refusal” or “mandatory purchase” of shareholder interest in the event of death or incapacity. A buy-sell agreement provides instructions for purchase of a decedent’s shares at a predetermined price.

Entrepreneurs and founders are often faced with the challenge of transferring their enterprise interests to an estate. A licensed estate planner is an attorney, who will assist a client make the important decisions about protecting those assets, including intellectual property assets such as trademarks from loss after death. Estate planners recommend a three (3) part planning process: Part 1: Estate Planning; Part 2: Business Continuity and Financial Planning; and Part 3: Advanced Wealth and Estate Transfer. In this article, we focus on Part 1: Estate Planning to examine the benefits of integrating estate formation as part of business strategy.

Estate Planning is Never Too Soon

When an entrepreneur or founder builds a business, they are working towards a venture that will hopefully pay off in the future. Once realized, the value of a business can be transferred to a personal estate. Entrepreneurs and founders have unique financial planning needs in that they must be proactive about estate planning early in the company formation process. Most owners are prompted by the benefits of federal Internal Revenue Service (“IRS”) tax-exemption for gifts and estates which allow an executive officer to maximize their liquidity options while still living. Even basic estate planning will educate an entrepreneur or business owner about the financial planning, asset protection, and tax-exemption available to them before retirement in their later years.   

In the New York Surrogate’s court ruling of the Evelyn Seiden (Hogan) estate, the 2014 taxation of marital trust rule was overturned to allow for refund on $530,000 in assets, Matter of Seiden (Hogan), 2018 NY Slip Op 32541 (U),. The estate argued that federal Internal Revenue Service (“IRS”) rule IRC § 2044 was inapplicable on grounds that the order of taxation on $530,000 held in her husband’s estate at tie of death in 2010, was invalid after transfer to his spouse. Since the Surrogate’s court decision in 2014, state law has considered the issue of family heirs’ rights to tax refunds and future savings on large estates.

QTIP Trust Tax Deferral

The Seiden estate case illustrates the flexibility of “Qualified Terminable Interest Property.” trusts for remaining spouses. New York estate law allows for spouses to take advantage of marital deduction in tax reporting. Under the current tax law, spouses control the distribution of estate assets at the death of a surviving spouse until their own death or incapacity. QTIP trusts allow for tax deferral, but not tax avoidance according to IRS and state rules.

The formation of a Qualified Terminable Interest Property (“QTIP”) trust is a tax-exempt estate planning option that allows for an owner to elect distribution of estate assets to named beneficiaries, including children of a preceding marriage. In most cases, estate property assets transfer automatically to a surviving spouse under federal and New York estate law. The creator of a QTIP trust does not transfer any assets during their life. Most estate holders include a trust as part of their will, not as a separate entity. A safe estate planning option for parents interested in protecting the rights of children to their estate, the QTIP is one of the best estate planning tools for transferring property after death.

                           The Interests of Surviving Children

The circumstance of a second or third marriage as part of the consideration of an estate or trust formation is most usually relevant where there are surviving children of those unions.

QTIP Trust Planning for Same-Sex Couples

When the United States Supreme Court struck down the Defense of Marriage Act (“DOMA”) in a 2013 ruling, estate planning opportunities for same-sex couples were broadly enhanced to include tax-exempt and tax-deferred asset protections. The landmark decision overturning the DOMA redefined the entire framework of estate related provisions formally reserved for the benefit of a marital union between a man and a woman. The modification of the Act has since had important impact on the financial, retirement, and estate planning of those families as result of a universal model of marital rights.

How DOMA Reversal Changed Estate Planning

Viatical settlement has become a popular strategy for investors seeking immediate liquidity for end-of-life expenses. Distinct from other derivative products, viatical settlement also offers life insurance policy holders immediate cash for reinvestment without the extenuating contract obligations of other financial assets. Settlement transfers the title of a life insurance policy to a new buyer in exchange for a lump sum cash payment. Eligible insured can also avoid the hassle of collateral borrowing against the limit on a life insurance policy with viatical settlement, which affords an investor immediate cash in exchange for the full value of the policy.    

Eligibility Requirements for Settlement

Life insurance policy holders in New York are eligible for life settlement depending on the terms and conditions of an agreement. An eligible policy can provide an investor with additional cash to offset finance medical or other important expenses. The seller and buyer must agree to any modification of a policy’s terms and conditions, such as obligation to premium payments assumed at time of origination. The full value of a life insurance policy must be determined prior to settlement. Distribution to named beneficiaries of a policy, or other condition to the sale of the policy value should be articulated before transfer.      Unlike other key investments such as real estate, a life insurance policy settlement is a fast and efficient process for enhancing retirement liquidity.

New York insurance laws allow for insurance providers to offer insured seniors life-care policy coverage. A specialized form of insurance coverage, a life-care policy indemnifies the holder for end-of-life care and treatment as part of an extended life services agreement. Distinct from a limited life insurance agreement, life-care coverage can be purchased as a separate policy. An option for estate planning clients, life-care can be written into an agreement as part of a comprehensive insurance policy. Combining life insurance with the added health and life expense benefits that may be required by an estate holder while still alive, life-care coverage protects valuable estate and trust assets in the interim. Insurance policies offering value-added, life-care coverage agreements:

1)    Extended Life-care Policies

A comprehensive life-care policy will cover life insurance beneficiaries on death, as well as any life expenses a holder may have such as residential services, housing, treatment, and end-of-life costs. Some extended life-care policies also offer healthcare services agreements with unlimited access to medical providers at little to no difference in fee assignment. Extended life-care policies tend have a higher sign-on fees.