New York Estate Planning & Elder Law Blog

When an elderly family member is diagnosed with Alzheimer’s related dementia, it is time to discuss the details of legacy, financial, and estate planning. While connecting a loved one with support services is the priority when their memory is beginning to fade from age, formation or modification of financial and estate planning to meet their needs during their last years is often a key family decision. No matter how well an elderly family member has planned for financial and estate distributions, review of those plans to accommodate the expense of residential treatment or other medically related support costs will ensure that an elder is taken care properly while alive; as well as cover memorial and funeral costs at time of death. A licensed attorney can assist with the formation of a combined financial, estate, and legacy plan to suit an elder’s needs.

Law of Diminished Capacity

Within U.S. federal law, the definition of “diminished capacity” applies to incapacitated parties no longer exhibiting full mental ability. If an elder lacks the ability to make routine decisions about complex matters, they may be suffering from memory loss or dementia related to the onset of Alzheimer’s disease. Patients diagnosed with dementia still have legal rights to their property and assets. Spouses of incapacitated parties are the primary decision makers under law. According to New York rules of intestate succession EPTL 4-1.1, If no living spouse or will exists, and another family member has not already been given power-of-attorney, rights to legacy, financial and estate planning on behalf of  an incapacitated party may be assigned to court appointed trustee.

In October 2018, new statutory legislation recommended by the Irish Law Reform Commission of the country’s cabinet considered a rule that would block those found guilty of killing their domestic partner or spouse from unjust enrichment attached to financial or estate proceeds. In the United States, spousal property is customarily subject to rules of intestate succession in a probate court proceeding, when one spouse is found to have been unlawfully killed by another. If not other legitimate heirs or beneficiaries are present, spousal property part of estate assets is escheat to state coffers. In states with Dead Man Statute provision, heirs or beneficiaries may contest the last will and testament of a decedent. New York Dead Man Statute protects a decedent from a spouse making false claims in court.

Irish Estate Law and Spousal Protections

The proposal comes at a time when an Irish citizen, Eamonn Lillis received distribution of a near 1.3m euros (£1.16m) from his spouse’s estate, despite being found connected to her manslaughter. Jailed for six years between 2010 and 2015 for assault and battery of Celine Cawley, his wife, Lillis maintains the responsible party was a trespasser on their property, who had broken into the home. The proposed legislation seeks additional protections for spouses harmed by their partners; prohibiting guilty parties from any financial benefit flowing from spousal property. The Irish government is also considering statutory provision concerning cases where a spouse has aided or abetted in the murder or manslaughter of their partner. To present, Irish law has not prohibited claimants who have commissioned unlawful killings of their spouse from inheriting joint assets (i.e.  co-owed property); as seen in the High Court decision in favor of Lillis’ claim.

New York State Department of Taxation and Finance (“DTF”) announcement that it will investigate President Donald Trump’s estate comes at a time when the federal Internal Revenue Service (“IRS”) is pursuant of accurate reporting information about the presidential family’s wealth. Trump’s lawyers cite the 3-year federal and New York state statute-of-limitations in response to recent allegations that the estate aggressively undervalued properties on state and federal tax record. Properties reported on a gift or estate tax return form to the IRS and the state, however, make it unlikely additional disclosure will be required, and not after the statute runs out.

The Presidential Audit

A New York Times report suggests Donald Trump gave Fred Trump a $15.5 million stake in a Trump Palace development in exchange for forgiveness of loans to his son – an amount subject the federal 55% gift tax rate. Fred Trump apparently never reported the gift at the individual-level, nor is it reflected on the estate tax return, and this has the potential to involve Donald Trump an investigation due to his role as an executor of the estate. In 2000, the Fred and Mary Trump estate was audited. The audit included gift tax returns that had been audited in the 1990s, making any further investigation impossible as those records could not be reopened.

The news that the First Family protected their assets from additional taxation is now the subject of Congressional debate over potential reforms to federal estate tax law. Following the announcement that the New York Department of Taxation and Finance (“DTF”) is looking into near future audit of the Trump family estate, similar Internal Revenue Service {“IRS”) code was called into question. If existing federal and state tax statute is allowing taxpayers estate tax loopholes, what are the consequences for government finance? Tax dodgers usually seen as a limited segment of the American population, may in fact represent a far greater proportion of taxpayers than thought. Allegations that President Donald Trump’s father’s estate had applied fraudulent accounting methods to avoid higher estate taxation, apparently has saved the family millions that would have otherwise been owed to the government.

Congressional review of tax loopholes in FY18Q4.

With democrats keenly focused on review of what might be federal IRC loopholes present within Part 4. Examining Process, Chapter 25. Estate and Gift Tax, Section 1. Estate and Gift Tax Examinations, future reform is likely. The current rules lower the valuation of estates based on minority ownership of assets, and the result is a lower tax bill. As tax experts point out, controlling shares are more valuable than minority shares. Distribution rules to shares of an estate allow for families to report split shares. Violation of current law occurs when an estate reports transfer of minority shares, exclusively; reducing the reported valuation of an asset. Congressional attention is now being given to IRS and New York DTF enforcement of existing federal and state laws. The IRS budget reportedly dropped more than $800 billion between 2010 and 2017 during the Obama Administration.

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.