Archive for the ‘Estate Planning’ Category

The Importance of Asset Protection Strategies

Monday, July 6th, 2015

Protecting your assets from creditors is an important part of estate planning. There are several different strategies that may be effective. Because individual situations vary and the laws regarding these strategies can be complex, you should only use them with the advice of an experienced estate planning attorney. With that in mind, here is an overview of some techniques for asset protection:

lawyer-or-notary-with-cl Give certain assets away before any claims arise. When done properly, such a gift may succeed in transferring property while keeping it out of an estate that may face claims from creditors. However, creditors may try to claim the transfer is fraudulent if it is made after claims arise, if the gift makes you insolvent, or if you place limits on the gift such that you still maintain control over the assets.

In the business context, a basic strategy for protecting your personal assets is to operate businesses as limited liability entities, such as corporations or limited liability companies (LLCs), rather than as partnerships or sole proprietorships. However, be aware that if you blur the line between your personal finances and those of your company, you may open your personal assets up to creditors of your business.

At the family level, an important asset protection strategy is for a married couple to hold title to property as tenants by the entirety, rather than as tenants in common. This can prevent one spouse’s creditors from asking the court to partition the property. The laws on this vary by state, but in New York, third parties cannot partition a tenancy by the entirety. However, when a married couple may be subject to estate tax, there are reasons why owning property as tenants in common may be more advantageous.

 

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Planning for Diminished Capacity

Tuesday, June 23rd, 2015

Older investors are at risk for “diminished financial capacity,” or a decline in the ability to manage money and other assets in one’s own best interests. Such a decline is a problem in itself, and it also may make investors more vulnerable to fraudulent investments and other forms of financial abuse. senior couple planning

In a recent bulletin, the Securities and Exchange Commission (SEC) stressed the importance of planning for the possibility of diminished capacity. In order to minimize difficulties for investors and their families, the SEC recommends taking these steps:

  • Organize important documents in an accessible, safe location so that they can be available to loved ones in an emergency, and keep them up to date. This includes bank and brokerage statements and account information, mortgage and credit information, insurance policies, Social Security and pension information, and contact information for your attorneys and financial and medical professionals.
  • Provide financial advisers with trusted emergency contacts. Make sure that investment advisers or brokers have the contact information of a trusted loved one they can contact if they suspect something is amiss or if they are unable to get in touch with you.
  • Consider a durable financial power of attorney. Such a document gives a trusted person the power to make financial decisions on your behalf. It is called “durable” because it remains in effect if you become incapacitated. You may still revoke or alter it while you retain capacity.
  • Consider involving a loved one in your financial affairs. If you become incapacitated, it will be much easier for a loved one to help out if he or she already has some idea of your finances. For instance, you may wish to consider having duplicate statements sent to a friend or relative.
  • Speak up if something is amiss. If you feel that someone is trying to take advantage of you financially, or you are having trouble with managing your affairs, talk about it with someone you trust. General elder abuse can be reported by calling the Eldercare Locator at 1-800-677-1116. Suspected elder financial abuse involving investment advisers or brokers can be reported by calling the SEC at 1-800-732-0330.

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Financial Impairment Can Occur In Cognitively Normal Seniors

Wednesday, June 3rd, 2015

Littman Krooks elder law attorneysWhile cognitive declines associated with Alzheimer’s diseases and other dementias are well-known, most people are unaware that seniors without dementia are also at risk for cognitive impairment, particularly in financial issues.

The University of Alabama at Birmingham’s Alzheimer’s Disease Center conducted a study that revealed that different types of intelligence plays roles in determining when people are at their best cognitively. Research showed that fluid intelligence, or the ability to solve new problems, may start to decline as early as age 20. When it comes to financial matters, people tend to peak in their 50’s. Crystallized intelligence, or a person’s wisdom and experience, continues to build until reaching a plateau around the age of 70. At that point, people may begin to have difficulty keeping track of financial matters or are vulnerable to making bad decisions or being exploited.

The research also identified early warning signs of financial decline that adult children of seniors should watch out for, to help prevent financial losses.

The warning signs include:

  • Taking longer to complete ordinary financial tasks, for example, paying bills, filing taxes
  • Paying less attention to financial details, such as an overdue bill, an error in a bank statement
  • A decline in everyday math skills, for instance, calculating a tip in a restaurant
  • A decreased understanding of financial ideas, possibly, interest rates or return on investments
  • Difficulty assessing the risks in a financial opportunity, such as the risk of a scam or poor investment

Seniors can be proactive and authorize their elder law or estate planning attorney to contact a trusted family member or friend if they believe that their cognitive skills are declining.

 

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In Retirement Planning, Timing of Withdrawals is Everything

Monday, May 18th, 2015

Planning for retirement can be complicated. Many retirees rely on a combination of Social Security retirement benefits and retirement savings accounts such as IRAs. Knowing when it is in one’s best interest to start taking benefits or withdrawals is crucial: not too early and not too late.  Littman Krooks Elder Law

When it is “too early” to take benefits or withdrawals may be a matter of opinion. After all, if a retiree needs the funds at a certain time, he or she may be have no choice. However, in planning your retirement, it is important to know when taking money too early will carry penalties. With regard to savings in IRAs, if you withdraw funds before age 59 1/2, you will face a 30 percent mandatory withholding: 20 percent prepayment of income tax and a 10 percent penalty for early withdrawal. When it comes to Social Security benefits, keep in mind that taking early retirement benefits at age 62 means that you will receive a fraction of the benefits you would get if you waited until full retirement age or even longer. It’s also important to know that if you take early retirement benefits while still working, the money you earn over a certain amount each year may reduce your benefits, until you reach full retirement age.

At the other end of the scale, withdrawing money “too late” means failing to take your required minimum distributions from an IRA once you reach age 70 1/2. If retirees with pretax retirement accounts wait too long to withdraw retirement income, they can face a 50 percent tax. So whether you need the cash flow or not, be sure to take those required minimum distributions, even if it is only to reinvest the funds.

 

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Home Sharing May Be A Viable Option for Seniors

Wednesday, April 15th, 2015

By Bernard A. Krooks, Certified Elder Law Attorney

As baby boomers enter retirement, a trend is emerging: more and more single seniors are choosing to live with roommates.

This living arrangement may be especially attractive to widows or widowers in retirement who own a home that is too large or expensive for one person. Other options such as selling the home to move into a smaller one, moving into a retirement community, or living with an adult child, may not be as appealing as staying put and welcoming a roommate.Littman Krooks Elder Law

People in retirement find home sharing to be a viable option because it allows a certain lifestyle to be maintained, preserves one’s independence and adds the positive element of companionship. Loneliness and isolation are significant problems for many single people in retirement, and home sharing can be a solution. Many people living in a home sharing situation cite the sense of community as a positive factor. Simply having someone to ask how one’s day is going or help out with little things can make a huge difference in one’s outlook.

Saving money is a big motivator as well. A shared household is more efficient, and single individuals whose adult children are grown may find that paying all of the expenses of a household on their own is not feasible. Roommates can share in all household expenses. This reduction in costs makes it possible for single seniors to stay in a larger home and can be an important way to preserve their financial advantages.

Of course, living with roommates often requires accommodation. Seniors may not have lived with a roommate since their college years and adapting to different personalities and lifestyles may take adjustment. Some seniors in a group housing arrangements have found it useful to hold house meetings and set house rules.

Setting up a household with another single friend may be the most common set-up, but cooperative households have been formed by seniors who did not know each other previously. Home sharing is being organized through websites, workshops and meetings for potential housemates to get to know each other. In considering potential roommates, it is important to talk beforehand about expectations and potential differences in lifestyle to determine whether compatibility exists.

Although it may be common for one roommate to move into a home owned by another and pay rent, other groups of seniors have invested in a home together. Joint ownership of a home and joint checking accounts for roommates may not be the norm, but they have worked in some instances for close friends committed to living cooperatively.

Overall, home sharing can be a practical and enjoyable option for seniors. “The Golden Girls” may have had the right idea after all.

 

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It’s Time to Protect Your Family and Your Future – 2015 National Financial Literacy Month

Tuesday, April 14th, 2015

In support of the 2015 Improving Financial Awareness & Financial Literacy Campaign built around National Financial Literacy Month (April) and six month later during National Estate Planning Awareness Week (3rd week in October) the following estate planning article contains a very important message.

Over 50% of our adult population does not have a current or up-to-date estate plan to protect themselves and their family’s assets; that’s half your family, friends, and associates.

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Estate planning is a financial process that can protect you and your family and is a very important component of your overall financial planning. Now is the perfect time to put your estate planning house in order. If you don’t have an up-to-date estate plan and you happen to get hurt or sick and cannot manage your financial affairs, the courts will have to appoint someone to manage them for you. The person they appoint might not be the one you would want to perform those tasks.

Without an estate plan, when you pass away, your affairs will be settled by default through a complex legal system called “probate.” The handling of your financial affairs can turn into a costly and frustrating ordeal for your family and heirs.

The crafting of a good estate plan starts with planning, followed by the proper drafting and signing of appropriate legal documents such as wills, trusts, buy-sell agreements, durable powers of attorney for asset management, and an advanced health-care directive or health-care power of attorney. Having these documents in place saves you and your family a lot of money and time at a very difficult and emotional time. 5-2-Graphic-EPArticle
Your estate planning should also address the coordination of the way you hold title to your various assets, your beneficiary selections, and the possible transfer of certain assets while you are alive.

Regardless of the extent of your net worth, estate planning is important for everyone. Complex strategies may be used by wealthy people to reduce death taxes and costs. Others may only require a simple will and/or trust to pass on property to their heirs and provide for minor children.

Even if a simple will is all you require, an estate plan is an essential part of your financial planning. Everybody will need it someday. The time to address or update your estate plan is now.

For more information on estate and financial planning content, contact
V.Sabuco@TheFinancialAwarenessFoundation.org.

 

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Comparing Different Options in Life Insurance

Wednesday, March 18th, 2015

Certain forms of life insurance can be used as an investment and estate planning tool as well. Understanding the different options, term life insurance and permanent life insurance, can help to protect your family’s economic security in the event of an unexpected death.

Term life insurance
Term life insurance is pure risk protection, and it is what many families consider to be essential. The premium is paid for a certain term, or number of years, and the death benefit is paid out only if the insured person dies before the term ends. Term life insurance is much less costly than permanent life insurance, for the simple reason that the insurance company expects to only have to pay out the death benefit for about five percent of policies.

Within term life insurance, a common type is guaranteed level premium term life insurance, in which the annual premium remains the same for the entire term of 10, 15, 20 or 30 years. Insurance companies may also offer return premium term life insurance. With this type, some of the premiums paid are returned if the policyholder outlives the term, minus fees that the insurance company retains. This type of term life insurance is more expensive.

Permanent life insurance
With permanent life insurance, there is no fixed term, and the policy is in place for the insured person’s entire life. As long as the premiums are paid, then a death benefit will be paid when the person dies. Because the insurance company knows it must pay out a benefit, the premiums it charges are much higher than for term life insurance.

Permanent life insurance is typically comprised of an insurance portion and a savings or investment portion. The insurance company invests part of the premiums paid, and the policy builds up a cash value on a tax-deferred basis. The policyholder can usually borrow against the cash value.

The basic form of permanent life insurance is known as whole life insurance. A more flexible form is known as universal or adjustable life insurance. With a universal life insurance policy, one may choose to pay premiums at different times and increase the death benefit. One may also select a fixed death benefit, or an increasing amount equal to the face value of the policy plus the cash value amount.

 

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Estate Planning Changes for 2015

Thursday, February 12th, 2015

By Erica Fitzgerald, Esq., Littman Krooks LLPErica Fitzgerald

The American Taxpayer Relief Act of 2012 (“ATRA”), enacted in January 2013, made changes to the laws governing Federal estate and gift taxes. Specifically, the Federal estate and gift tax exemption amount was set at $5,000,000, and provides for annual increases to account for inflation. As a result, as few as 1% of estates are expected to owe Federal taxes.

In 2015, the Federal estate and gift tax exemption is $5,430,000 for individuals, up from $5,340,000 in 2014. This means that individual estates valued at $5,430,000 or less will not be subject to Federal estate and gift taxes. The Federal lifetime gift exemption, which also increased to $5,430,000 in 2015, is tied to the estate tax. An individual can make gifts during his or her lifetime, but must file gift tax returns with the IRS. Specifically, an individual can give away up to $5,430,000 over the course of his entire life, over and above gifts which qualify for the annual Federal gift tax exclusion, without incurring Federal gift taxes. Dollar for dollar, however, the amount given away during the donor’s lifetime will reduce the amount that can be given away free from Federal estate taxes at the donor’s death. Individual estates whose value exceeds $5,430,000 are subject to a 40% Federal estate tax.

These two exemptions are not to be confused with the annual Federal gift tax exclusion, which will remain $14,000 in 2015. This annual exclusion allows an individual taxpayer to make gifts of up to $14,000 each to an unlimited number of recipients in a single year without having to file a Federal gift tax return on those gifts.

The Federal estate and gift tax exemptions currently available have shifted the focus of estate planning. Since most estates are now exempt from Federal estate and gift tax, estate planners focus on planning to minimize capital gains, income taxes, state estate taxes and creditor claims.

 

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Update: Should You Consider a Trust for Your Child’s Inheritance

Thursday, September 11th, 2014

In our recent article “Should You Consider a Trust for Your Child’s Inheritance?” we stated that an estate over 1 million dollars is subject to the NY State Estate tax. In fact, the law was recently altered so that persons whose date of death is after April 1, 2014, are only charged estate tax on estates over $2,062,500. This figure will gradually increase as follows, a date of death that is:  on or after April 1, 2015 and before April 1, 2016 $3,125,000.00; on or after April 1, 2016 and before April 1, 2017 $4,187,500.00; on or after April 1, 2017 and on or after January 1, 2019 $5,250,000.00, at which point increases will follow with the Federal Estate Tax Exemption increases. For more information on the new Estate Tax laws and how they might affect you, feel free to contact us.

 

Source: http://www.tax.ny.gov/pdf/memos/estate_&_gift/m14_6m.pdf

Should You Consider a Trust for Your Child’s Inheritance?

Monday, August 4th, 2014

An update has been made to the NY Estate Tax. To read our update, please click here.

This conversation comes up a lot with our estate planning clients: “So, you’re leaving your entire estate equally to your three kids,” we say to our client. “Do you want to leave it outright or would you consider putting it in a trust for them?”

The two most common responses:

  •  “No, my kids are all OK. They can manage money and would be insulted if their inheritance was left in trust.”
  •  “No. If they can’t manage their inheritance then I can’t help them. I don’t want to try to control things after I’m gone.”

Then, we explain that creating a trust is actually a good thing for the kids but it’s usually hard to convince clients. So let’s try it here, and then we can just hand them this article.

Why consider a trust for your child’s inheritance? It may be a real benefit to them, protecting their inheritance from their creditors, spouses, even estate taxes. Let’s look at each of those concepts briefly:

One common concern we hear: “we love and trust our daughter, but though we like her husband we wouldn’t want him to inherit our assets if something happens to our daughter.”   By creating a trust for your child’s inheritance, you make it easier to keep the property separate from spouses and more likely to pass to your grandchildren on your child’s death. Sadly, divorce is very common: you can help keep the inheritance from being considered as part of the property to be divided if your daughter does divorce.

Let’s consider creditors. “Our son is a doctor,” you say, “and he has plenty of money.” Ah, but professionals are vulnerable to future malpractice lawsuits, and anyone can have even a substantial estate drained by an auto accident or medical crisis. Creating a trust for your son can help protect the inheritance from lawsuits, creditors, and bankruptcy.

How about taxes? If your daughter is a successful professional, she might well have a taxable estate on her death. That could be true even though she is not particularly close to that figure today. If estate taxes do kick in, they start at a very high 40% on the federal level. New York currently has an estate tax on estates over $1 million.  If you leave your daughter’s inheritance in trust, you can fairly easily arrange to keep it out of her “estate” for tax purposes.

So there are good reasons to leave an inheritance in trust, even though all your children are responsible and your estate is modest. But aren’t there some serious downsides? Doesn’t it mean a lot of additional costs and imposition of a bunch of difficult rules? Not really.

Depending on your family circumstances, you might even name your son trustee of his own trust. Or make your son trustee of the trust for your daughter, and make her trustee of his trust. Or make your daughter (you know, the one with her CPA who works for the bank) trustee for all the kids’ trusts. In other words, creating a trust does not mean you have to incur professional trustee fees though it might actually make sense to name a non-family trustee. We can talk about those options.

The trusts for your children will have to file tax returns each year. That will in fact mean a small additional cost. But the total amount of income tax paid need not increase. It should be fairly easy to assure that each trust’s income is taxed to its beneficiary, rather than paying taxes at the (often much higher) trust rates. We can talk about those issues, as well.

What about your son’s access to the money? Do you think he might want to use his inheritance to pay off his mortgage, or to allow him to put more away for retirement, or to send your grand kids to college? You can give him the power to demand money from the trust, or give the trustee direction to follow those kinds of requests. Let’s talk about how much control you want to give each of your children over the trust while they are alive. And on their death, you can even give your children the power to name which of their children (or spouses, or charities, or whomever you want to permit) will receive the remaining trust’s assets.

Cost? Setting up a trust for each of your children will likely increase the cost of your estate planning but by a pretty small number, in most cases. These principles apply even (perhaps especially) if you are leaving your estate to grandchildren, nieces and nephews, or anyone other than your children.

As you can see, there are many benefits of using a trust in your estate planning.  Keep in mind, however, that one size does not fit all and it is important to have your documents tailored to meet your specific needs.

An update has been made to the NY Estate Tax. To read our update, please click here.


Learn more about elder law and estate planning by visiting www.elderlawnewyork.com