FAQs Estate Planning New York City and San Diego

Below are the answers to common initial questions many clients have when they first contact Katzner Law Group. We hope that the information below address many initial concerns you may have, but if you don’t find the answers here, please contact us with questions specific to your case.

Estate Planning Law Firm That Puts Families First

For many of my clients, their individual retirement account (IRA) is one of the most valuable assets they own. Deciding who should be named as the beneficiary of your IRA involves more than simply asking “who do I want to get this money?”  You also need to take into account various tax consequences as well as the need for protecting the IRA from potential future creditors of your beneficiaries. If your children are minors, the decision is straightforward. Minor children cannot inherit under the law so you will need to set up a trust to own and manage your assets, including your IRA, until your children are old enough to responsibly manage the money you leave for them. If your children are adults, the answer to the question becomes more complicated. By naming your adult children as the beneficiaries of your IRA, they can, under current law, “stretch” the IRA distributions out over their lifetimes. While there are significant tax advantages to a “stretch” they are not required to do this and could simply cash out the full balance of the IRA account at once and do with it as they please. Also, under a new ruling by the U.S. Supreme Court which you can read about by clicking here, inherited IRAs are subject to creditors’ claims and not protected in bankruptcy. So if you have any concerns about your children’s financial management skills or the possibility that they may be subject to creditor’s claims in the future, you should consider naming a trust as the beneficiary of your IRA. A properly prepared trust can provide significant tax advantages as well as protect the IRA from the potential claims of your children’s creditors (including an ex-spouse).  We always recommend a trust be named as the beneficiary of your IRA.  The decision is of course yours, but in our experience a trust works best to accomplish the goals and desires you have for your loved ones. To learn more about protecting the money you leave for your children, click here.

A qualified personal residence trust (QPRT) is an advanced estate planning technique that effectively removes the value of your home from your estate.  It can reduce your state and federal estate taxes. A QPRT is a type of irrevocable trust that is set up to own your home for a period of time, usually ten to fifteen years. Upon the expiration of this time period, the home is transferred out of the trust and to the beneficiaries of the trust – usually your children. The benefit of a QPRT is that you get this asset out of your estate, thereby saving on estate taxes, but you can continue to live in your home while it is owned by the trust. Further, once your home is transferred out of your trust to the beneficiaries, you can still continue to live in your home but must now simply pay fair market value rent to the owners of the home – again, usually your children. By utilizing this advanced estate planning technique, you remove the value of your home from your estate for estate tax purposes. If the value of your home is $3 million, you have effectively removed $3 million from your taxable estate.  With a tax rate of 40% you have increased the dollar value of your estate that will go to your children and loved ones, and not the government, by $1.2 million!
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The rules for gifting change each year, and they have changed substantively since the American Taxpayer Relief Act.  If you are wondering about gifting money, stocks, bonds, real estate, business interest, or other assets to your children, grandchildren, or others you have come to the right place. I’d first like to note that the gifting laws can be more complicated than they at first appear. Gifting can have unintended consequences. For example, there are different rules for gifting money to your young child than your elderly parent in a nursing home. Gifting money to a young child is usually very easy and straightforward with no unintended consequences.  Gifting money to a relative in a nursing home can have unintended consequences such as making them ineligible for Medicaid. So use the information here as a guide and get more detailed information from an estate planning attorney based on your personal circumstances. Gifting in 2017: Annual gift tax exclusion – inflation adjusted to $14,000 per person. This amount can be given to a child, grandchild, or other person. Furthermore, if you are married each spouse can gift this amount to each desired recipient. This means that a married couple can together gift $28,000 per year per individual recipient. If one spouse has greater assets be sure to ask your CPA about split gifts and whether or not you need to file a gift tax return. Lifetime Exclusion (unified credit): This is a topic of much confusion. In addition to the annual gift tax exclusion discussed above, each person now also has a $5,490,000 lifetime credit which can be used to make gifts to children and grandchildren and/or their spouses. You will be required to file a 709 gift tax return when making gifts larger than the $14,000 per year annual gift tax amount but you can use your lifetime credit. So what this means, and where the confusion lies, is let’s say you gift $25,000 to your grandchild. Since your annual gift tax exclusion is $14,000 you’ve gifted $11,000 in excess of this amount. But you don’t necessarily pay taxes on this $11,000.  Rather, the $11,000 is simply decreased from your $5,490,000 lifetime credit. Gifts of assets without a clear value, such as real estate or business interests, may require an appraisal. If you are considering a lifetime gift, especially one in excess of your annual gift tax exclusion, you may require the advice of legal counsel. Gifting can be effectively used to reduce estate taxes in certain circumstances and should always be coordinated with your larger estate plan.  The advice of counsel can therefore be both valuable and can save you and your heirs from later problems that might cost much more to correct.

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The unlimited marital deduction allows a married couple to pass an unlimited amount of money, estate tax free, to a surviving spouse. An example best illustrates the concept. Assume James and Jill are married and upon the death of James he has an estate worth $8 million.  Let’s assume his federal estate tax exemption currently sits at $5 million. In the absence of the unlimited marital deduction, James could only pass $5 million dollars estate tax free to his spouse and his estate would be required to pay tax on the $3 million difference.  With a tax rate of 40% that would be a federal estate tax bill of $1.2 million.  With the unlimited marital deduction, James can pass his entire estate, tax free, to Jill. If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at 646.736.7539.

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Portability is a very important estate tax concept. It means that if we are dealing with a married couple, upon the passing of the first spouse if the value of their estate does not require the use of their entire federal estate tax exemption (currently $5.49 million) then the amount of the exemption that was not used can be used upon the passing of the surviving spouse. What does this mean in “plain English?”  It means that married couples can effectively double the amount of their estate that is not subject to federal estate taxes. Before getting into an example it’s important to note that to take advantage of portability you must file the proper estate tax forms or portability will be lost. Let’s see just what portability can do with an example. Assume James and Jill are married, own all their assets jointly, and have a combined estate worth $9,000,000. Let’s also assume that the federal estate tax exemption in effect at James’s passing is $5,490,000. If portability were not available and James predeceased Jill, here is what would happen. James could pass his entire estate, estate tax free, to Jill pursuant to the unlimited marital deduction discussed here. However, when Jill passes away, she would have only her own $5,490,000 exemption to avoid estate tax.  That would leave $3,510,000 subject to the federal estate tax ($9 million – $5.49 million).  With a federal estate tax rate of 40%, $1,404,000 in federal estate taxes would be due upon Jill’s passing.  This would be a huge waste of money that could otherwise have gone to beneficiaries. With portability in effect, Jill could use James’s $5,490,000 exemption as well as her own and double the amount not subject to estate tax to nearly $11 million. With a total estate of $9,000,000, the estate would not be subject to federal estate tax and would save $1,404,000! Portability is one of the most important concepts in estate planning and you must be sure to properly protect your portability exemption upon the death of your spouse.  We discuss whether New York has estate tax portability here. If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at 646.736.7539.

As discussed here, federal estate tax portability allows married couples to effectively double the amount of their estate that escapes federal estate tax. Assume for example that James and Jill are married, own everything jointly, and have a combined estate of $7,000,000. If James were to pass away first, using the unlimited marital deduction in New York, he can transfer everything to Jill and no New York estate tax is due upon his passing. However, when Jill passes away, her estate is $7,000,000. With only a $5,250,000 exemption currently available in New York, Jill’s estate would pay approximately $640,000 in New York estate tax (New York is one of the worst state estate tax states because of their estate tax “cliff”). If New York had portability, Jill could have used James’s $5.25 million exemption, in addition to hers, and no estate tax would have been due. The bad news is that New York does not have portability. The good news is that with advance planning, James and Jill can still avoid the New York estate tax and pass an additional $640,000 to their heirs. If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at 646.736.7539.

An irrevocable life insurance trust, also known by the acronym “ILIT”, is an advanced estate planning tool that can be used to minimize or avoid estate taxes. Life insurance is a common method people use to make sure their family has sufficient financial resources upon their passing. Many have life insurance proceeds that will pay their beneficiaries millions of dollars upon their passing.  However, most are not aware that their family may not receive all of the life insurance proceeds. There is a huge misunderstanding when it comes to life insurance proceeds.  Many believe that they pass to the beneficiary “tax free.”  This is true in a sense but also very wrong in another sense.  It’s true that they pass income tax free.  But they do not necessarily pass estate tax free.  Life insurance proceeds are included in your estate for estate tax purposes. However, by creating an ILIT, you can protect life insurance proceeds from estate taxes.  They will then pass not only income tax but also estate tax free.

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Like many things in life, estate plans vary widely in their quality and effectiveness.  The LegalZooms and will-mill law firms provide very basic form documents, merely cutting and pasting your name and some personal information that leaves big holes in your estate planning. Sometimes clients are given a will when a trust would have been better because they did not get the proper advice regarding the benefits and disadvantages of each one. They were put into a product that served the company or attorney best, not what was best for them. As part of our practice, we are often asked to review estate plans created by other companies or law firms. Some clients thought that they had a trust that would allow their estate to avoid probate, when in fact they actually just had a will. The lawyer just told them “yes, this will avoid probate.”  These clients had asked for a trust and were told they had a trust, only to find out after my review that they had a will with a testamentary trust that only goes into effect after their death and does not avoid probate. I have had clients come to me with plans that do not protect the money their children inherit from full public disclosure of the assets/liabilities, from potential claims of a child’s ex-spouse, or from their children’s creditors.  Leaving a lump sum of money to children, especially young children, is asking for trouble (or the money to be spent quickly on wasteful things at best). The decision whether to do your own estate plan is a personal one. I’m not a hard sell attorney. I can only advise you that the number of professionals, doctors, accountants, and other lawyers who do not practice estate planning who we do estate planning work for is large. These professionals are aware of the intricacies that estate plans contain and how sometimes in life we need to pay money to someone to properly protect ourselves.  For example, life insurance premiums, homeowner’s insurance premiums, or legal fees for an estate plan. All money spent to protect yourself and your family.  They ask me to do their estate plan because they believe that using an online provider, a cut-rate attorney, or doing it themselves would leave many holes in their estate plan and expose their loved ones to issues in the future.

Business owners often hear about certain benefits of incorporating in “incorporation-friendly” states like Delaware, Alaska, or Nevada and wonder if incorporating in one of these states would be right for them. Although we would earn substantially more fees with a complex organizational structure, most of the clients I see would not benefit under this arrangement.  This is because their business is headquartered in New York and most of their business is conducted in the New York.  Typically, they would still have to follow New York law, unless they relied heavily on accountants and lawyers to setup a complex organizational structure. If they were to incorporate in Delaware, Alaska, or Nevada, the registration, upkeep, accounting and legal fees would generally offset any potential advantages. We find that incorporating in another state is just not a cost-effective option for many small businesses who do most of their business in New York. For business who will be operating in multiple states, the option to incorporate in a “business-friendly” state like Delaware, Alaska, or Nevada becomes a more viable option. If you have questions about whether incorporating in a “business-friendly” state is right for you, please contact our office.

New York allows pet owners to include provisions in their wills that provide for their pets after their own passing. But even for a state such as New York where you are able to provide for your pet in your will, a standalone pet trusts is generally preferable to a will for several reasons: 1) Wills go through probate. This is a time intensive and often uncertain process.  Your pet requires immediate attention.  It can’t wait for the court. Unlike a will, standalone pet trusts do not go through probate and so your wishes for your pet can be carried out immediately.  There will be no lapse in care. 2) Courts have the ability to change the amount pet owners leave behind for their pets in their wills. Courts cannot change amounts that pet owners have established in standalone pet trusts because the court is simply not involved in their administration. 3) When pet owners provide for their pets through a provision in their wills, they cannot direct how money left behind for the pet should be spent and generally cannot leave any enforceable instructions for their pet’s care.

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Contrary to popular usage, there is are distinct and important differences bewteen a Special Needs Trust and a Supplemental Needs Trust. They are two distinct types of trusts. A Special Needs Trust is usually funded with someone’s own money for their personal benefit. For example, someone who becomes disabled would create a Special Needs Trust to set aside their own funds to supplement government benefits. A Supplemental Needs Trust is usually funded with money from a 3rd party, such as a parent of grandparent. For example, a parent or grandchild may set aside funds for their child or grandchild. A parent of a special needs child would create a a Supplemental Needs Trust. A Supplemental Needs Trust is designed to provide assets to supplement the needs of your disabled or special needs child while not risking the loss of vital government benefits.  By failing to plan accordingly, and just leaving your special needs child an outright inheritance, you could cause your child to lose their much needed government benefits. They would have to exhaust their inheritance before being able to reapply for government benefits. It’s a poor use of an inheritance that could otherwise be saved. By properly drafting, setting up, and funding a Supplemental Needs Trust, the money you leave for your child can be used to supplement rather than replace any government benefits they are getting or may get in the future.  A Supplemental Needs Trust can vastly improve the quality of life for your child.

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More than anything else all parents, but especially those of a special needs child, worry about what will happen to their child after they are gone. Let’s put aside the situation with minor children and assume the special needs individual is an adult. Parents worry that after they are gone, their child’s quality of life may deteriorate. The parents expended significant time and effort providing their special needs child with an outstanding quality of life. How can this quality of life be maintained?  Trips to the ball game, outings to the opera, and just generally living life to its fullest are not things that should stop the instant the parents pass away.  At Katzner Law Group, one of the options we recommend to clients with special needs children is the use of a Supplemental Needs Trust.  A Special Needs Trust can be used for to enhance the quality of life of your special needs child while not threatening eligibility for government benefits like Medicaid and SSI.  A Special Needs Trust is a way to ensure that your child is cared for in the way you want, and at the standard you expect, after you are gone.

Putting aside guardianship, which we discuss extensively throughout the site, if you have minor children, one of the most important decisions you will have to make is when, how, and under what circumstances your children will receive the money you leave for them. If a parent dies without a trust in place, a judge would decide how much of your assets would go to them. The judge would rule that whatever amount of money your children are going to inherit would be inherited outright at the age of majority, which is 18 in New York. Take a trip down memory lane and think about 18 year old you. While most of us were nice young men and women, without drug or other serious problems, we were all certainly incapable of handling a lump sum of money falling in our lap. At best the money would be spent and wasted quickly. At worst it would lead us down the road to ruin. When you have taken the time to put a trust in place you get to decide for yourself, as opposed to a judge making the decision for you, when, how, and under what circumstances your children will have access to their inheritance. Maybe you want them to get everything outright at age 18, which we certainly would not recommend.  Maybe you want access to the inheritance triggered by certain life events such as graduating college, turning a certain age, getting married, or having children. What matters is the decision is yours and not that of a judge who doesn’t know you or your family. You don’t see mention of a will above.  That is because with a will all of the information, such as when and how much money your children will inherit, would be public. There are predators who review probate filings just looking for someone to rip off. These are not necessarily violent criminals, but rather sophisticated scam artists who know how to take advantage of the young and naive. A properly drafted trust keeps this information private and allows your estate to avoid the time-consuming probate process.

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Yes, there are ways to avoid or reduce estate taxes, commonly referred to as the “death tax”. In New York, for someone that passes away after April 1, 2017, estates smaller than $5.25 million dollars, including life insurance, are not subject to the death tax. There are ways to effectively double the $5.25 million exemption if you are married and use a special kind of trust. Many people, most really, fail to take advantage of this. New York has a bigger estate tax problem than most because of what’s commonly called the estate tax “cliff.”  In most states the estate tax is treated as such: the exemption is let’s say $1 million.  Your estate is worth $2 million. You are taxed on the amount you exceed the exemption. So, in our example you would take the $2 million estate and subtract the $1 million exemption and pay tax on the $1 million difference.  In New York, for someone that passes away after April 1, 2017, if their estate is worth greater than $5,512,500 their entire estate would be subject to estate tax!  This is a draconian result and shows why it’s so important to do whatever is legally possible to avoid the New York estate tax. If you would like to avoid or reduce the New York death tax, give us call at 646.736.7539 to schedule a free consultation to discuss protecting what matters most to you.

No!  It means exactly the opposite and this is one of the biggest misunderstandings I see (and why we are by and large a trust based practice). If you have a will, rather than avoid probate, it literally guarantees that your estate will need to go through the probate process.  Wills get probated, that’s all there is to it. That being said, as much as we espouse the benefits of trust based planning throughout our practice, having a written will is certainly better than having nothing at all. In the absence of a written estate plan, the court decides everything about your estate: who the personal representative is; who receives your assets; who the guardian is of your minor children; and when they receive those assets. These are some serious, life defining, decisions.  The court is the last one that should be making them on your behalf. When you have a written will, you get to decide who you would want as your personal representative, who the guardian of your minor children should be, who you want to receive your assets, when you want them to receive those assets, as well as any restrictions and protections you want to place on receipt of those assets. This is particularly important when you have minor children. There are downsides to a written will that a trust based plan avoids, the fact that your estate will still go through the probate process which means it will take 9-18 months, cost 3%-8% of the gross estate and be 100% public thereby exposing your loved ones to predators and scam artists. However, you at least get the benefit of knowing that your wishes are being met and everything is not being left in the hands of a judge.

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While it is ultimately a personal preference we believe the benefits of a revocable living trust based estate plan far exceed those of a will (without the drawbacks that come with a will). A will guarantees a probate proceeding to administer your estate upon your passing. Probate is time consuming (approximately 9-18 months in New York), expensive (averages 3%-8% of the value of the gross estate), and is completely public thereby exposing your loved ones to predators and scam artists. A properly drafted and, just as importantly, funded trust avoids the probate process. The best way to think about the differences is that a will is cheaper and easier on the front end but more difficult to administer and much more expensive on the back end due to probate.  While a trust is more expensive and involved on the front end it is vastly cheaper and easier for your family in the long run. Simple math will tell you that 3%-8% of a $500,000 estate far exceeds the cost involved in a setting up a revocable living trust based plan with an attorney.  And with life insurance proceeds and other assets a $500,000 with probate fees of $15,000-$40,000 is just the tip of the iceberg. Many of you would face probate fees of much more.

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Unfortunately, some attorneys do draft trusts that require them to change it every time you buy or sell an asset. This is a cash cow for these unscrupulous attorneys. A properly drafted trust should not require you to come see your attorney whenever you want to put assets in, or take them out, of your trust. Some law firms never tell the clients that they needed to fund their trusts – much less give them instructions on how to do it. Later, when the client would call with questions, they would get a bill in the mail for $200 and make a mental note to never call the attorney again. It wasn’t a surprise that the plans they had put together were failing when the clients needed them most. At Katzner Law Group, we NEVER do this. We give our clients all the necessary documentation to allow them to put things into, and take things out of, their trusts WITHOUT our involvement (unless you want our help, in which case just ask). We also give our clients extensive written instructions on how to do this and we never charge our clients to talk to us: not before preparing your trust, not during preparation of your trust, or after the trust is completed. Our no surprises flat fee covers everything.

That is not true. With a properly drafted and funded revocable living trust, you retain control of all of your assets. Control is the cornerstone of our definition of estate planning.  You can take assets out of your trust, or put them into your trust, whenever you see fit.

100% yes. You can amend your revocable living trust in any way big or small.  You can even terminate it. You can change it as often or as infrequent as you want to. Usually, the reasons you would make changes to your trust are to change who you want to manage your assets after your passing, the successor trustee upon your death, or to change who receives your assets after your passing, your beneficiaries.

If you die without a will, legally known as intestate, even though you don’t have a plan the State of New York has a plan for you. The matter will go to probate court. The probate court will decide the personal representative whose job it is to administer your estate, who should receive your assets and when they should receive them. By not having a will or revocable living trust, your estate may be managed by the last person you would have wanted, your assets may be given to those who you would not have wanted to receive them, and in a manner in which you may not have wanted.

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