Estates and Trusts

Estates and Trusts

Not Realizing the True Value of “Stuff”

This is Part 6 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. For federal estate and gift tax purposes, transfers are valued at the “fair market value” of the asset on the date of transfer. One of the more common estate tax audit issues is the failure to properly report the value of items of tangible personal property on a decedent’s Form 706. Similarly, failing to properly account for the value of tangible personal property transferred by inter vivos gift may result in the audit of a client’s Form 709. Despite their upfront cost, in order to identify the true value of art and collectible assets, clients should obtain professional periodic appraisals. Appraisals serve many functions, including estate and gift tax reporting, such as establishing value for insurance purposes, establishing bidding parameters for assets at auction, obtaining loans with tangible personal property serving as collateral, and planning for future gifts.  For tax purposes, fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” Although the most persuasive indication of fair market value is an actual contemporaneous sale of the property in question, in the absence of such a sale, an appraisal is typically required to establish the taxable value of the asset subject to transfer. Under current regulations, a reported gift of tangible personal property that exceeds $5000 in value must be substantiated by a qualified appraisal conducted by a qualified appraiser.  The Pension Protection Act of 2006 (the “Pension Act”) established new requirements for what it means to have a “qualified appraisal” for tax reporting purposes. A qualified appraisal must contain a declaration that the appraiser (i) understands that a substantial or gross valuation misstatement resulting from an appraisal of the value of the property that the appraiser knows, or reasonably should have known, would be used in connection with a return or claim for refund, may subject the appraiser to a civil penalty, and (ii) understands that an intentionally false or fraudulent overstatement of the value of the appraised property may subject the appraiser to civil penalty for aiding and abetting an understatement of tax liability.  A qualified appraisal of tangible personal property must contain the following:  a detailed description of the property;  the physical condition of the property;  the date or expected date of the contribution;  the terms of any agreement or understanding entered into or expected to be , entered into by or on behalf of the client that relates to the use, sale or other disposition of the property, including any restrictions on the use or disposition or reservations of rights conferred on anyone other than the donee and any earmarks for particular use;  the name, address and taxpayer id number of the appraiser;  a detailed description of the appraiser’s educational background and qualifications;  the date on which the property was valued;  the appraised fair market value of the property;  the method of valuation used to determine the fair market value;  the specific basis for the valuation; and  a description of the fee arrangement between the client and the appraiser.   A qualified appraisal is prepared by a qualified appraiser defined as an individual who:  has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in the regulations;  regularly performs appraisals for pay; and  meets other requirements that the IRS has prescribed in the regulations.  An individual cannot be a qualified appraiser with respect to any specific appraisal unless she:  demonstrates verifiable and passing professional or college level education and experience or earned a recognized appraiser designation from a generally recognized professional trade or appraiser organization or as part of an employee apprenticeship program or educational program; and  the education and experience is in valuing the property type being appraised.   In addition, the appraiser must make the following declaration: “I understand that my appraisal will be used in connection with a return or claim for a refund.  I also understand that, if there is a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund that is based on my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties.  I affirm that I have not been at any time in the three-year period ending on the date of the appraisal barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. 330(c).” If the appraisal or the appraiser does not meet all of the above requirements, the resulting valuation report will not be considered as any evidence of value, and the IRS will conduct its own appraisal to determine the fair market value of the asset subject to transfer.  In certain instances, providing the IRS with an appraisal that adheres to all of the requirements of the Pension Act may not help with avoiding an estate or gift tax audit, but provides a powerful bargaining tool. For example, regardless of the asset composition of the remainder of the estate, if a decedent dies owning artwork that has a claimed value of $50,000 or more, the appraisal will be subjected to consideration by the IRS Art Advisory Panel, comprised of a body of art industry experts who review and evaluate the acceptability of artwork appraisals submitted by taxpayers in support of claimed fair market value. When a qualified appraisal is submitted, you and your client may find that the IRS is more willing to compromise on valuation issues.

February 11, 2025

Estates and Trusts

Protecting Your Family and Future: Essential Estate Planning for the LGBTQ+ Family

Estate planning is a critical part of securing the future for any family, and for LGBTQ+ individuals, it is particularly important given the legal complexities and challenges that may arise in the current political climate. There have been several legal shifts that affect LGBTQ+ families’ rights and protections, which makes it even more essential for LGBTQ+ families to ensure their estates are properly considered, planned, and protected. Below is a simple checklist of estate planning documents that LGBTQ+ families must consider to safeguard their interests, particularly during a time of legal uncertainty and inequitable policies: Last Will and Testament When one thinks of an estate plan, a will is what likely comes to mind: it is considered a fundamental estate planning document. A will directs how a person's property, whether real or personal, should be distributed after death. For LGBTQ+ individuals, a will is especially important because, without one, state laws dictate who inherits your estate and in what proportion. With only limited exceptions, state laws do not recognize non-biological family members, such as a partner or even a registered domestic partner: close friends who are more like family are not recognized in any state. A will provides clarity to ensure that your relationships and wishes are honored, regardless of your family makeup. Why a will matters for LGBTQ+ individuals: If you have a partner but are not legally married, or if you want to leave property or assets to a close friend or chosen family member, a will ensures that these individuals are recognized as your beneficiaries. It also allows you to name the person you choose to oversee the distribution of your assets. While many states require that your biological family is informed of your death and provided a copy of your will, most courts are fiercely protective of directives in a will. As a result, documenting those wishes is imperative to ensure your wishes are carried out in the way that you desire. Without a properly executed will, most states simply distribute assets to your biological family members. Healthcare Directives Advanced healthcare directives such as a healthcare proxy and living will specify both the person you wish to speak for you in a healthcare setting and the type of care you would want (or refuse) in the event you cannot articulate those wishes. The health care proxy appoints an agent who knows you, understands your wishes, will communicate those wishes, and advocate for your rights in a health care setting. The living will outlines the type of care you want including memorializing your preferences for medical treatment or discontinuance of treatment. A living will sets forth whether you want life-sustaining treatment and how you would like to be treated in end-of-life scenarios. Why healthcare directives matter for LGBTQ+ families and individuals: In the event of incapacitation, biological family members may not always know or respect your wishes, particularly if your biological family does not support your identity, lifestyle, or relationships. Naming a healthcare proxy and having a living will in place ensures that your healthcare decisions are in line with your desires, even if your family disagrees or is uninvolved in your life. Without a healthcare proxy, a family member (who may not understand or accept your relationships) may gain control over your medical decisions. Without documentation, most states allow your next of kin to make these decisions, potentially preventing your partner from being involved in your care. Nominating your partner or chosen friend provides them with the legal authority to make decisions consistent with your wishes. Durable Power of Attorney   A durable power of attorney (POA) allows you to designate someone, referred to as an agent, to manage your financial matters upon your incapacity. A POA can be tailored to the specific powers you wish to bestow upon your agent. For example, your agent can access your bank accounts, pay your bills, apply for public benefits, and manage investments on your behalf. Why a durable power of attorney matters for LGBTQ+ individuals: LGBTQ+ couples are not recognized as legal next of kin unless they are legally married and, therefore, will face complications if their relationship is not legally formalized, as most financial institutions are unable to speak with others without authority. This is especially essential if partners financially depend on one another but have separate financial accounts; without a POA in place, your partner cannot access your finances in the event of your incapacity. Having a POA ensures that your partner, rather than a biological family member who may not be involved in your life or support your relationship, has the authority to handle your finances, if necessary. Trust A trust is a key estate planning tool that allows you to manage your assets efficiently during your life and distribute your assets after your death without the necessity of probate (which is required with a Last Will and Testament). A trust also allows you to appoint a successor trustee, a person in charge of your trust assets if you can no longer manage your own trust assets. There are different types of trusts that can accomplish many goals within an estate plan, but the common theme is that assets funded in a trust avoid probate, a lengthy and expensive court process. In addition to avoiding probate, trusts do not have to be authenticated by a court or shared with your biological family members, as is the case with a Last Will and Testament. Why a trust matters for LGBTQ+ individuals: A trust can ensure that assets are passed on according to your wishes, even in cases where state inheritance laws might not recognize your partner or chosen family. Trusts can also be structured to provide for specific needs, such as the care of a dependent partner or a loved one, long after you die. Importantly, trusts are much more difficult to contest than wills, thus ensuring that estranged biological family members will not be able to easily upend your carefully constructed estate plan if they do not agree with your choices or your relationships. A trust is also a private document that others cannot access in the same way as a Last Will and Testament, which is a public document that is published in court. Beneficiary Designations Beneficiary designations ensure that your assets pass directly to your loved ones without going through probate. A beneficiary designation can be made on bank accounts, brokerage accounts, insurance policies, and retirement accounts. Relationships can change over time, and therefore, beneficiary designations should be reviewed and updated regularly to reflect your current wishes. Why beneficiary designations matter for LGBTQ+ individuals: If you have a domestic partner or chosen family members, it is crucial to ensure that your beneficiary designations align with your intentions. In most cases, financial institutions will not recognize a domestic partner or non-biological family members unless you have explicitly named them as beneficiaries on your financial accounts and policies. Beneficiary designations are also private and financial institutions are not at liberty to disclose those named as beneficiaries on your accounts after your death. Letter of Intent While not legally binding, a letter of intent can provide your loved ones with important details and intentions regarding why you constructed your estate plan the way that you did. For example, if you decide to disinherit a biological family member from an estate distribution, the reason for the exclusion can be articulated in the letter in a way that cannot be explained in the estate planning document itself.      Why a letter of intent matters for LGBTQ+ individuals: If your estate plan is one that leaves out next of kin or biological family members, a letter of intent can provide further proof of your wishes related to your estate distribution. Letters of intent can also ensure that your funeral or memorial service reflects the way you wish to be remembered, celebrating your identity and your values. Letters of intent can also be entered into a court proceeding as evidence in an estate contest to further outline your rationale for the disinheritance of estranged family members. Guardianship Documents for Children It is vital for any parent to document guardianship of their minor child in the event of the parent’s death. Documenting a guardianship designation ensures that upon your passing, your children will be cared for by the person or the people you designate, not the person that a court may choose. Why guardianship documents for children matter for LGBTQ+ individuals:  If you are an LGBTQ+ parent, establishing guardianship is incredibly important, especially if you are not biologically related to your child. In some cases, your biological family members may challenge your partner's ability to care for your children upon your death, particularly if you are in a non-married partnership. Establishing guardianship and memorializing your choice of guardian for your minor children provides clarity, protects your partner’s rights to care for your children, and safeguards the sanctity of your family structure. Estate planning is a crucial step for every individual, but it takes on an added level of importance for LGBTQ+ individuals, especially during times of legal uncertainty and political turmoil. With the right documents in place, you can be confident that your wishes will be respected and that your loved ones are protected, regardless of legal challenges or changes in administration. Estate planning empowers you to take control and secure the rights of your partner, your children, and your chosen family.

February 11, 2025

Estates and Trusts

Not Hiring a Qualified Appraiser and Realizing the True Value of Art and Collectibles

This is Part 5 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. For federal estate and gift tax purposes, transfers are valued at the “fair market value” of the asset on the date of transfer. One of the more common estate tax audit issues is the failure to properly report the value of items of tangible personal property on a decedent’s federal estate tax return. Similarly, failing to properly account for the value of tangible personal property transferred by inter vivos gift may result in the audit of a federal gift tax return. Despite the upfront cost, professional periodic appraisals should be obtained to identify the true value of art and collectible assets. Appraisals serve many functions, in addition to those relating to estate and gift tax reporting, such as establishing value for insurance purposes, establishing bidding parameters for assets at auction, obtaining loans with tangible personal property serving as collateral, and planning for future gifts. For tax purposes, fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” Although the most persuasive indication of fair market value is an actual contemporaneous sale of the property in question, in the absence of such a sale, an appraisal is typically required to establish the taxable value of the asset subject to transfer. Under current regulations, a reported gift of tangible personal property that exceeds $5000 in value must be substantiated by a qualified appraisal conducted by a qualified appraiser. The Pension Protection Act of 2006 (the “Pension Act”) established new requirements for what it means to have a “qualified appraisal” for tax reporting purposes. A qualified appraisal must contain a declaration that the appraiser understands that a substantial or gross valuation misstatement resulting from an appraisal of the value of the property that the appraiser knows, or reasonably should have known, would be used in connection with a return or claim for refund, may subject the appraiser to a civil penalty, and understands that an intentionally false or fraudulent overstatement of the value of the appraised property may subject the appraiser to civil penalty for aiding and abetting an understatement of tax liability. A qualified appraisal of tangible personal property must contain the following: A detailed description of the property. The physical condition of the property; The date or expected date of the contribution. The terms of any agreement or understanding entered into or expected to be, entered into by or on behalf of the client that relates to the use, sale or other disposition of the property, including any restrictions on the use or disposition or reservations of rights conferred on anyone other than the donee and any earmarks for particular use. The name, address and taxpayer identification number of the appraiser. A detailed description of the appraiser’s educational background and qualifications The date on which the property was valued. The appraised fair market value of the property.  The method of valuation used to determine the fair market value. The specific basis for the valuation.  A description of the fee arrangement between the client and the appraiser.   A qualified appraisal is prepared by a qualified appraiser defined as an individual who: Has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in the regulations Regularly performs appraisals for pay. Meets other requirements that the IRS has prescribed in the regulations. An individual cannot be a qualified appraiser with respect to any specific appraisal unless she demonstrates verifiable and passing professional or college-level education and experience or earned a recognized appraiser designation from a generally recognized professional trade or appraiser organization as part of an employee apprenticeship program or educational program as well as the education and experience in valuing the property type being appraised.  If the appraisal or the appraiser does not meet all the above requirements, the resulting valuation report will not be considered as any evidence of value, and the IRS will conduct its own appraisal to determine the fair market value of the asset subject to transfer. In certain instances, providing the IRS with an appraisal that adheres to all the requirements of the Pension Protection Act may not help with avoiding an estate or gift tax audit, but provides a powerful bargaining tool. For example, regardless of the asset composition of the remainder of the estate, if a decedent dies owning artwork that has a claimed value of $50,000 or more, the appraisal will be subjected to consideration by the IRS Art Advisory Panel, comprised of a body of art industry experts who review and evaluate the acceptability of artwork appraisals submitted by taxpayers in support of claimed fair market value. When a qualified appraisal is submitted, you and your client may find that the IRS is more willing to compromise on valuation issues.

February 4, 2025

Estates and Trusts

The Impact of Transgender Executive Order on New York Residents

On January 20th, President Trump issued an executive order entitled “Defending Women from Gender Ideology Extremism and Restoring Biological Trust to the Federal Government.”  The executive order included provisions for the limitation of two gender markers – male and female -- on United States passports. The passport gender marker limitation is not retroactive but will only apply to issuing new passports and renewing existing passports. The order would force changes to federal documents, including new and renewed passports, visas, and Global Entry cards, and would require trans inmates to be removed from areas in federal prisons that align with their gender identity. It also rescinds the Biden-era executive order that allowed trans individuals to serve in the military. Almost immediately after the announcement, transgender advocacy organizations began receiving frantic calls from members of the transgender community, fearing that the executive order could lead to the inability to change identification documents to conform to one’s gender identity, as well as fears of physical harm. New York is one of several states that have enshrined the protection of gender identity in its constitution. Substantial pushback on the executive order is anticipated at the federal and state levels. If you are a member of the trans community and were born in New York City and/or the State of New York, you should still be able to change your name and state-issued identity documents to properly align with your gender identity. If you have not already done so, you should start the process of changing your legal name and state-issued identification documents. Various organizations, including A4TE and Lambda Legal, offer assistance with these processes.  Along with your state-issued identification documents, you should make sure that your estate planning documents, including wills, trusts, powers of attorney, health care proxies, and designations of agents for the disposition of your remains, are in order and properly reflect your gender identification. Selecting the proper agents who will fulfill your wishes with respect to your health care and bodily remains is equally important. 

January 30, 2025

Estates and Trusts

Not Maintaining an Up-to-Date Inventory of Art and Collectibles for Estate Planning

This is Part 4 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. A well-organized inventory is essential for effectively managing and planning the distribution of collectibles, including art. Clients may struggle to track their assets without an inventory, making future distribution and estate planning significantly more challenging. Maintaining an inventory can be as simple as using a basic spreadsheet or, for larger collections, leveraging specialized inventory management software. Regardless of the method, a comprehensive inventory should include: Size, materials, and description of items, as well as photographs of each individual item. A system for recording purchases and sales, including transaction dates and parties involved. Documentation of loans and gifts, specifying recipients and terms, as well as the location of items. Records of appraisals and insurance coverage. Logs of damages and losses. Keeping an up-to-date inventory also helps track each item's provenance, which is critical for authentication and valuation, particularly in the event of a sale. Maintaining an inventory of copyrights is just as important for clients who are also artists or creators. These intellectual property rights may have been licensed for specific periods or may require a distinct distribution plan separate from the original works upon the artist’s passing. Ensuring these details are well-documented can prevent legal complications and preserve the creator’s legacy.

January 28, 2025

Estates and Trusts

Equal Shares, Unequal Outcomes: Estate Planning Strategies for Parents and their Qualified Retirement Accounts

Typically, a parent wishes to treat their children equally in their estate plan and presumes they will achieve this goal by dividing all their assets into equal shares upon their death. Accordingly, they will designate their children as equal beneficiaries of their qualified retirement accounts, such as traditional IRAs and Roth IRAs. However, doing so without considering the individual circumstances of their children may be less tax efficient and may ultimately result in one child receiving more assets after the payment of taxes than their siblings. Traditional IRAs vs. Roth IRAs: Key Differences A traditional IRA is funded on a pre-tax basis, with the income taxes on any appreciation deferred until assets are withdrawn from the account. Traditional IRAs are subject to requirement minimum distributions (RMDs) when the account holder attains the age of 73. A RMD is the minimum amount that must be withdrawn from the IRA each year. Contributions to a Roth IRA, on the other hand, are made with after-tax dollars, and the distributions are withdrawn tax-free. In addition, there is no RMD requirement for a Roth IRA during the lifetime of the account holder. The Ten-Year Rule When the account holder dies, most beneficiaries must take distributions pursuant to the “ten-year rule,” which requires that the beneficiary withdraw the account assets in full within ten years from the date of death of the original account holder. During this withdrawal period, the beneficiary must take RMDs in each year that the inherited account is open. As these withdrawals are made, the beneficiary must pay the deferred taxes based on their individual income tax bracket. Notably, withdrawals from a Roth IRA account remain income-tax free to the beneficiary, and are not subject to the RMD requirement. Tax Benefits for Eligible Designated Beneficiaries (EDBs)  A beneficiary that is deemed an “eligible designated beneficiary” (“EDB”) is not subject to the ten-year rule and may take distributions from the inherited account over their lifetime. Thus, the account assets may continue to appreciate tax deferred over a significantly longer period of time. EDBs include beneficiaries that are not more than ten years younger than the original account holder, surviving spouses, beneficiaries that are deemed disabled or chronically ill, and minor beneficiaries.[1]. It will be inherently more tax efficient for a parent to name an EDB as a beneficiary of their qualified account because of the extended withdrawal period the beneficiary will have to take distributions from the account. Therefore, if a parent has two or more children, one of whom is deemed an EDB, and names each of them as an equal beneficiary of their IRA account, the child who is an EDB will ultimately receive significantly more assets than their siblings because the assets in the account will have significantly more time to appreciate tax-deferred. In addition, because of the extended withdrawal period, the beneficiary has more flexibility in choosing when to take distributions from the account to avoid getting bumped into a higher marginal income tax bracket. Accordingly, if the parent wishes that each of their children receive as nearly equal shares of their assets as possible, and one or more of their children are deemed EDBs, it may be better to provide a greater share of their qualified accounts to the EDB beneficiaries, and the non-EDB beneficiaries with a greater share of their other estate assets. Case Study: Tax Efficiency and Equalizing Shares What if the account holder does not have any beneficiaries who will be deemed an EDB? Even then, the account holder should still consider their children's individual income tax circumstances. Suppose the account holder is single with a Roth IRA with $1,000,000 in assets and a traditional IRA with $2,000,000 in assets. The account holder has two children: Alex, who is a stockbroker, and Jamie, who is a public school teacher. We can presume that Alex has more taxable income than Jamie and that Alex has a higher earning potential in their career. If Alex and Jamie were named equal beneficiaries of the traditional IRA, it is likely that the distributions from the account would bump Jamie into a higher income tax bracket in the years that they are received, thus generating more income tax liability. Alex’s distributions are almost certain to be taxed at a higher marginal rate than Jamie's. If Alex and Jamie are named equal designated beneficiaries of the Roth IRA, the distributions would be tax-free in the year that they are received, leaving their respective income tax brackets unaffected. Therefore, naming Jamie as a primary beneficiary of the traditional IRA, where distributions will be taxed at a lower tax bracket, and designating Alex as the primary beneficiary of the Roth IRA is likely more tax efficient and most likely to ultimately result in each child receiving equal shares of the assets after payment of income taxes. As this example illustrates, naming each child as an equal beneficiary of a qualified account may not result in equal distributions after the payment of taxes, frustrating the intentions of a well-meaning parent. Therefore, careful consideration must always be given to the individual circumstances of an account holder’s intended beneficiaries. [1] Minor beneficiaries become subject to the ten-year rule once they attain the age of 18.

January 23, 2025

Estates and Trusts

Ethical Wills: The Heart of Your Estate Plan

When most people think of estate planning, Trusts and Last Wills and Testaments usually come to mind. I have spent my career espousing the essential tools for ensuring an efficient transfer of assets from one generation to the next, planning for taxes and incapacity, and outlining health care desires. However, the standard estate plan does not capture something equally valuable: the values, lessons, and hopes that many wish to document for their loved ones. That is where an ethical will comes in. Ethical wills, also known as “Letters of Intent, or “Legacy Letters” are non-legal documents that convey the intangibles like morals, beliefs, and reflections on your life - both the highs and the lows.    What is an Ethical Will? A traditional Last Will and Testament or a trust directs how your tangible assets will be distributed upon your death. An ethical will instead can serve as heartfelt advice and guidance to your loved ones and future generations. While it is not legally binding, an ethical will can be deeply personal and meaningful. Ethical wills are not new. In fact, there is mention of an ethical will in the Book of Genesis in the Bible and they were traditionally recited orally to family members. It was not until the Middle Ages when they were recorded in writing with the hope that the message would be preserved and shared with future generations. Do you need an Ethical Will? The short answer is no. But considering the fact that in creating a traditional estate plan, most put significant time, thought, and energy into who should inherit and in what proportion, it likely would be appreciated and helpful to share your reasoning behind how you came to those decisions, or what you hope the beneficiary might consider when living their lives and using what you left to them. Content of an Ethical Will: Values:  Leaving your worldly goods, your home, and other financial assets to the next generation is certainly important, but your ethical will might explain to your beneficiaries the values that you lived by that enabled you to acquire those assets. It can provide a platform for you to share with your beneficiaries your principles, your beliefs, and the lessons learned in doing so. Strengthening Family Connections: The event or ceremony of sharing your ethical will together can be a truly powerful experience for a family. A document containing stories, anecdotes, and your successes and failures can help family members feel connected to your story and to each other during your life or long after your death. Clarifying Intentions: Sadly, the decisions and bequests made in a traditional will or trust can be misunderstood and lead to conflict within a family – having the opposite effect that you intended. An ethical will provides you with the opportunity to explain your reasoning behind the content of your legal estate planning documents, reducing the likelihood of misunderstandings or hurt feelings. Providing Comfort and Guidance: An ethical will should be a sort of love letter to your family in which you provide words of encouragement, share the joy you felt with your loved ones, and impart wisdom and advice for their future reference.  For those with religious beliefs, many choose to share how faith served as a touchstone if a parent or loved one is no longer here. Ethical wills can also provide a great source of comfort and strength during times of grief.   Get started: The best part of an ethical will is that you don’t need to hire a lawyer to start. Reflect on Your Life.  Consider the experiences that shaped you over the course of your life. What life lessons do you think are worth sharing with your loved ones for years to come?  Tell them to “take that risk” because it served you well. Do you have hopes for your loved ones for their lives? Now is the time to share those hopes for their higher education, or creating a family in the future. Is there something specific that you want to be remembered for? If so, convey what that is and why it’s important to you. Be Honest and Authentic.  This is not a formal legal document; you should write in your own voice. The whole point of an ethical will is to be heartfelt and a reflection of you. Get personal and write it as though you are having the most heartfelt conversation with your loved ones. Do not be concerned with form, grammar, or the legality of it all. It’s ok to be vulnerable and share your failures and your regrets. Nothing is Forever.  Let’s face it, things change and because of that, you can always revise and update your ethical will. Just as I tell clients that legal wills and estate plans should be updated, your ethical will should also be updated. Relationships, net worth, health, values, and perspective are not permanent. Do not be afraid to reconsider and revise.  Sharing is Caring.  In most cases the ‘reading of a will’ is only something made for TV. With an ethical will, the choice is yours: you may decide that you want your ethical will read prior to revealing the contents of your legal will to set the stage for how your assets are to be distributed, or choose to share your ethical will during your life. Whether it is something left behind to be read after your death, or if you prefer gathering your family together to foster a discussion about legacy and lessons, there are no rules how you share.  Combining an Ethical Will with Traditional Estate Planning.  While an ethical will is not a substitute for a legal will or trust, it certainly can complement your estate plan by adding an emotional, encouraging, loving, and sometimes spiritual dimension. Work with your estate planning attorney to ensure your proper legal documents are updated and in place and consider crafting an ethical will to share with your lawyer so that they can better understand what is important to you and how to help you accomplish your goals. Creating an estate planning does not just have to be about the legality of moving assets from one generation to the next, it can be much more. Including an ethical will in your plan may ensure that your lessons, love, and legacy are preserved for future generations.

January 21, 2025

Estates and Trusts

The Hidden Cost of Failing to Plan

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #3:  The Hidden Cost of Failing to Plan Art and collectibles, while beautiful and culturally significant, can pose significant estate planning challenges. At the time of death, these assets are subject to estate taxes based on their fair market value. Without proper planning, federal and state estate taxes—combined with the costs of selling the assets—could erode over 50% of a collection’s value. Art, as an alternative investment, began emerging in the 1970’s and has only boomed as a result of digitalization. Art as a profitable investment now consistently outperforms other asset classes such as the FTSE 100 and S&P 100.  According to 12 Wall Street Journal article, "The Art of Passing Along Art," highlights an unexpected problem faced by many collectors, particularly those who acquired their art in the 1950s and 1960s. These octogenarian collectors are discovering that their art collections have appreciated significantly more than their liquid assets. As a result, their estates often lack sufficient liquidity to cover estate tax obligations. For example, consider a New York estate with $40 million in liquid assets and $100 million in art. That New York estate will potentially incur a $63.5 million tax bill, forcing the executor to sell some or all of the art within nine months to satisfy the obligation. Such rushed sales often lead to undervalued transactions, significantly reducing the collection's realized value. In extreme cases, the entire collection might be sold for a fraction of its worth simply to meet the estate's federal and state tax liabilities. Strategic Solutions for Collectors Fortunately, there are various strategies to reduce the estate tax burden on art and collectibles. These include: Charitable Contributions: Using art to fulfill philanthropic goals can provide both estate tax relief and personal fulfillment. Lifetime Gifting: Strategic gifting of art during the collector's lifetime can shift value outside the taxable estate. Estate-Freezing Techniques: These methods help move highly appreciated (or soon-to-appreciate) assets out of the taxable estate. Moving the Collection out of state: Using limited liability companies and other entities can eliminate the potential for state estate taxes by changing the location of the assets. When considering these options, it’s essential to evaluate whether the collection holds more value as a cohesive whole or as individual pieces. Each strategy should be tailored to the collector's goals, ensuring that both financial and sentimental value are preserved for future generations.  Make sure you speak with a trusted estate planner who specializes in planning for large collections of art and other intangible assets.

January 21, 2025

Estates and Trusts

Maryland’s 2025 Budget Proposal: Changes to Estate Taxes and What They Mean for Estate Planning

Recent Maryland proposed budget cause for close estate planning review before the sunset of the federal Tax Cuts and Jobs Act. This week, Maryland Governor Wes Moore released his proposed 2025 budget to the public and submitted House Bill 352 to the Maryland Assembly for review and approval. The proposed changes in the budget have a significant impact on estate planning, especially as it relates to Maryland’s death taxes. Maryland is the sole state in the union that assesses both an estate and inheritance tax against the estates of resident decedents. The governor’s budget proposed abolishing Maryland’s Collateral Inheritance Tax on probate and non-probate transfers and inter vivos gifts made within two years of the date of death. The proposed budget does not abolish Maryland’s Estate Tax, but significantly reduces the exemption amount.  Maryland’s current estate tax exemption is $5,000,000 per individual and $10,000,000 per married couple. The newly proposed budget would reduce the estate tax exemption by more than half to $2,000,000 per individual and $4,000,000 per married couple. Under the terms of the budget, the changes to Maryland’s Estate Tax exemption will go into effect in July 2025. Should the proposed budget and changes go into effect, many Marylanders will need to take a renewed look at their estate planning to mitigate the impacts of the changes to the new state estate tax threshold.

January 17, 2025

Adopting the Moving Van Approach

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #2: Adopting the Moving Van Approach When it comes to estate taxes, the Internal Revenue Service (IRS) expects all tangible personal property to be properly reported on Schedule F of Form 706. This includes any valuable assets such as art collections, antiques, or other collectibles owned by the decedent. Failing to report or undervaluing these items is a common audit trigger and can turn what might have been a clean estate tax return into a costly investigation. But what happens when a client suggests they intend to "make their valuable art collection disappear" to avoid estate tax inclusion? A Word of Caution No Statute of Limitations on Tax Fraud Tax fraud—including estate tax fraud—is not bound by a statute of limitations. If an art collection or other personal property goes unreported on Form 706, the IRS retains the authority to pursue unpaid taxes, interest, and penalties indefinitely. Moreover, these liabilities can extend to the decedent’s heirs, potentially creating financial and legal challenges for the next generation. Impact on Provenance and Marketability Beyond tax considerations, failing to accurately value and report an art collection can undermine its provenance. Provenance—the documented history of ownership—is critical for determining an item's authenticity and value in the marketplace. Without proper documentation, including accurate estate tax filings, selling items at their fair market value can become difficult, if not impossible. Practical Advice It's essential to educate clients on the long-term consequences of attempting to sidestep estate tax obligations. Transparency and compliance not only minimize audit risks but also preserve the integrity and marketability of valuable collections for future transactions. By taking a proactive and informed approach, you can guide clients toward strategies that align with both their financial goals and legal responsibilities.

January 15, 2025

Estates and Trusts

Prudent Investing in Uncertain Economic Conditions

The Prudent Investor Rule is a legal principal that requires fiduciaries to act in the best interests of a beneficiary and exercise reasonable care, skill, and caution when making investment decisions, which was codified in Maryland in 1994 by Md. Estates & Trusts §15-114.  The Rule applies to fiduciaries, including trust companies, investment managers or advisors, and individual trustees who make a valid §15-114(g) election to be governed by the statutory standards for investing and includes fiduciary assets under management, including trusts, guardianships, and custodians.  Under the Rule, a fiduciary must consider the best interests of the beneficiary in diversifying investments and investing and managing assets as part of an overall investment strategy.  In doing so, the fiduciary may take into consideration the general economic conditions at the time. Any regime change in government brings a degree of economic uncertainty to market conditions.  Currently, the market is experiencing uncertainty due to the US presidential election, a number of rising geopolitical tensions, natural disasters, and uncertainty surrounding economic policy and regulatory framework that could impact investment and spending decisions. Under the Prudent Investor Rule, a fiduciary is authorized to invest and manage assets to incorporate both risk and return objectives and to pursue an investment strategy that considers both the production of income and the safety of capital, utilizing a portfolio theory of investing.   The directive to fiduciaries to diversify investments is intended to mitigate risk to the beneficiary of investment decisions made by the fiduciary.   For Trustees and other fiduciaries, reliance on the advice and guidance of knowledgeable, experienced, and informed advisors is never more important than in the face of uncertain economic conditions. 

January 13, 2025

Estates and Trusts

Not Knowing the Tax Implications of How Your Client is Classified

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #1: Not knowing the tax implications of how your client is classified Navigating the tax landscape for art dealers, investors, and collectors can be a complex endeavor, but proper classification is key to maximizing tax savings and avoiding pitfalls. Professionals working with clients in the art world must understand how classifications affect income tax treatment, as well as practical steps to ensure clients benefit from the most favorable outcomes. This guide outlines the critical distinctions, tax implications, and actionable strategies to support clients. Understanding the Classifications The IRS recognizes three primary classifications for individuals engaged in art-related activities: dealers, investors, and collectors. Each carries distinct tax implications: Dealers: These individuals are in the trade or business of buying and selling art for profit. To be classified as a dealer under Internal Revenue Code Section 1221(a)(1), a client must demonstrate continuity and regularity in their activities and a primary purpose of generating income or profit. For example, an artist selling their own creations may qualify as a dealer. Investors: Clients who buy and sell art primarily for investment purposes fall under this category. Unlike dealers, investors do not actively market art as part of a trade or business but instead hold it as a capital asset Collectors: This classification applies to those who acquire art for personal enjoyment or aesthetic purposes. Collectors are not considered engaged in a business or investment activity and face the most restrictive tax treatment. Tax Implications The tax treatment of gains, losses, and deductions varies significantly depending on classification: Dealers: Gains are treated as ordinary income, taxed at rates up to 37%. Losses are ordinary losses, fully deductible against other income. Expenses incurred in the trade or business, such as storage or marketing, are deductible as ordinary and necessary business expenses on Form 1040. Note: For artists classified as dealers, the basis of their artwork is typically limited to the costs of their materials, often resulting in significant gains upon sale. Investors:Gains on the sale of collectibles are taxed as capital gains, subject to a maximum rate of 28%. Losses are capital losses, deductible against capital gains, with a $3,000 annual limit for net losses against ordinary income. Ordinary and necessary expenses for holding the art for income production are deductible. Collectors:Gains are taxed at the same 28% capital gains rate as investors. Losses are considered personal and cannot offset other income. Expenses related to collecting activities are generally nondeductible unless the client can demonstrate an investment intent. Practical Steps for Professionals Helping clients achieve the most advantageous classification involves careful analysis and documentation. Here are actionable strategies: Identify the Appropriate Classification: Evaluate the client’s level of activity, intent, and historical practices. Consider whether the client’s actions align with IRS criteria for a trade or business (e.g., continuity, regularity, and profit motive). Document Investment Intent:For collectors seeking reclassification as investors, gather evidence such as:Businesslike records of transactions. Consultation with art experts or advisors. Efforts to publicly display the collection. A history of profitable investments in similar areas. Educate Clients on Tax Treatment:Explain the impact of classification on their tax liabilities, including applicable rates and deduction limits. Highlight the importance of meeting the profit presumption test (three profitable years out of five) for activities presumed to be for profit. Leverage Deductible Expenses:For dealers and investors, ensure all ordinary and necessary expenses, such as insurance, storage, and advisory fees, are properly documented and claimed. For collectors, explore opportunities to demonstrate investment intent for potential reclassification. Monitor Changes in Activity:Reassess clients’ classifications periodically as their circumstances and activities evolve. A client who begins as a collector may transition to an investor or dealer over time with proper adjustments to their approach. Conclusion Proper classification of collectible and art-related activities can have a significant impact on a client’s tax liabilities, deductions, and overall financial outcomes. Professionals who understand these distinctions and proactively guide clients can unlock substantial tax savings and help avoid costly errors. By identifying the appropriate classification, documenting intent, and leveraging allowable deductions, you can ensure your clients are well-positioned to navigate the complex intersection of art and taxation. For tailored advice and support, consult a tax professional experienced in the unique considerations of art-related activities.

January 7, 2025

Estates and Trusts

The Impact of California Assembly Bill 2016 (AB2016) on the Probate Process

In April 2025, California bill AB2016 will take effect, significantly impacting the state’s probate process. Currently, probate is required if a decedent’s property exceeds a certain value, and AB2016 will raise this threshold considerably. AB2016 amends six sections of California’s Probate Code and repeals one. Starting on April 1, 2025, and lasting through March 31, 2028, the threshold for a real property to qualify for disposition without a full probate administration will increase to $750,000. As a result, more estates will be subject to probate, and the obligation to notify all heirs and devisees could lead to a rise in estate disputes. In the wake of AB 2016, it's crucial to understand the California probate process and consider planning strategies to avoid it. All too often the reasons provided to clients are probate avoidance or circumventing the Medi-CAL recovery. With the imposition of the new law set to take effect on April 1, 2025, the value for probate avoidance for real properties per Probate Code section 13151 will rise to $750,000 for a primary residence and then the additional small estate of personal property at $166,250. Of note, the law provides that the “primary residence” is not limited to the decedent’s residence at the time of their death. This provides a total exclusion anticipated for April 1, 2025, to be $916,250. However, Probate Code section 13100 is set to be adjusted for inflation every three years and based on the date of the enactment of this law, it is likely that the value will need to be adjusted upward with planners estimating a value of one million ($1,000,000.00) can be excluded aside from jointly held assets or payable on death accounts. This is a significant change in the basis previously required court involvement. Now, if not otherwise designated in an estate planning instrument, the assets below the threshold in the Probate Code can go through a shorter form procedure with the Probate Court in the determination of a real property of small value.  Although this will still expose family assets to the public, it prevents many of the expensive aspects of probate. For starters, the statutory fees associated with probate will no longer apply. This means that neither a personal representative nor any counsel would receive compensation based on the values of the statutory estate. Instead, the work performed could be calculated at an hourly rate or other agreed upon compensation.  While the law is meant to extend the notice to all potential heirs and beneficiaries, it does not address the notice requirements to governmental agencies such as the Department of Victims Compensation Board, the Franchise Tax Board, and the Department of Healthcare Services. or instance, under the Welfare and Institutions Code section 14009.5, the Department of Healthcare Services is only notified for a Medi-CAL recovery claim when there is a decedent’s estate as set forth in Title 42 of the United States Code. Pursuant to Section 1396p(b)(4)(A) of Title 42 of the United States Code, estate “shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law[.]” These techniques, as set forth in the Probate Code, provide an exclusion for the formal Probate Estate Administration procedures in California. This will eliminate a large sector from the reporting requirements for Medi-CAL recovery claims.  While AB 2016 brings about significant changes to estate planning and probate law that could affect how estates are managed in California, the fundamental reasons for estate planning remain unchanged. Instead, it is a stark reminder of why practitioners advise in planning early. While AB 2016 provides a partial fix for transference of wealth after passing, it does not eliminate the concerns during a client’s lifetime.  A properly executed estate plan can mitigate the need for court involvement during any period of incapacity. Further, it can provide for a mitigation of risk for abuse by others taking advantage of you as an elder with a truster contact named as a successor representative.

December 13, 2024

Estates and Trusts

The Ultimate Gift: Estate Planning for Your Loved Ones

When we think of holiday gift-giving, we are dazzled with images of homes adorned with holiday decor, beautifully wrapped packages tied with ribbons under an equally beautiful tree, and even cars draped with giant bows waiting in the driveway for the most appreciative recipients. Yet one of the most profound gifts you can give your loved ones is not parked in your driveway nor does it fit under a tree; it is the gift of estate planning. Ensuring your estate planning is complete, I would argue, is the most thoughtful, intentional, and responsible act that provides clarity, security, and peace of mind for those you care about most.  Why Estate Planning is a True Gift:  1. Eases Emotional Burdens    Losing a loved one is one of the most difficult experiences of one of life. Without a clear plan in place, grieving family members are left to navigate complicated legal and financial decisions while coping with their heartache. Estate planning removes the undue stress of figuring out your wishes, allowing your beloveds to focus on healing and celebrating your life.  2. Prevents Family Conflict  Unclear or contested estates are among the leading causes of family disputes. Clearly outlining your wishes in a carefully constructed estate plan, minimizes the potential for misunderstandings, disagreements, and legal battles. This proactive step can preserve family harmony during an emotionally challenging time.  3. Protects Your Legacy  You have worked hard to build your life and accumulate assets. Estate planning ensures that your legacy reflects your values—whether that means leaving an inheritance, supporting a favorite charity, or safeguarding family traditions, your wishes must be documented. More importantly, the documents must comply with your state’s requirements that govern last wills and testaments, and trusts.  4. Provides Financial Security  For families with young children, estate planning provides financial stability by appointing guardians and setting up trusts for those minor children. If you do not properly document who should step in to care for your minor children in the event of a tragedy, a court proceeding is sure to follow. Additionally, it is essential you decide who the best person is to manage your minor children’s inheritance until they are old enough to handle it themselves. For adult children, a properly constructed plan ensures that your assets are distributed according to your wishes. You should also consider how, exactly, those funds should be left to your adult child to ensure that such an inheritance matches the ability of the recipient to manage those funds.  5. Empowers Your Voice  Through advance healthcare directives and powers of attorney, you maintain control over medical and financial decisions, even if you are unable to articulate your wishes. Having proper documentation in place that nominates a person to speak for you and outlines the type of care you want spares your loved ones from guessing or making agonizing medical decisions on your behalf.  The Five Easy Steps to Provide Your Estate Planning Gift   1. Take Stock of Your Assets  Make a comprehensive list of your assets, including property, investments, savings, insurance policies, and sentimental items.  2. Choose Trusted Representatives  Identify the people in your life who will carry out your wishes. It is imperative that you choose those in your life whom you trust most to make informed financial decisions in your best interest and health care decisions that are reflective of your wishes.   3. Consult Professionals  An estate planning attorney can you help draft documents and navigate complex legal requirements. Financial advisors can assist you with maximizing the value of your estate to assist you in planning for your legacy. Accountants can assist you in determining the most tax efficient strategies that should be employed.    4. Communicate with Your Loved Ones  Discuss your plans with family members or those closest to you to ensure they understand your wishes. Opening a dialogue about such important issues can often bring clarity to your wishes and communication is an integral part of ensuring your plan is effectuated. A carefully drawn plan that is communicated in advance can reduce confusion and set expectations for those around you.  5. Revisit Your Estate Plan  Estate plans should be reviewed annually, especially when there are law changes, new presidential administrations, and updated tax policies. As I have shared before, in addition to those issues, the 5Ds apply, as well so in the event of Death (of a loved one or beneficiary),  Distance when a loved one or trusted person moves away, the Divorce of a loved one (or your own divorce,) the Disability of a loved one (or your own disability), and upon the arrival of new Descendants such as the birth of a child or grandchild. The 5Ds can really impact your estate plan.   A Lasting Gift for Generations   Estate planning is not just about the practicalities of distributing assets; it’s a profound act of love. By taking the time to plan, you give your family and loved ones the ultimate gift: peace of mind, financial security, and a clear roadmap for navigating a difficult time.  This holiday season, or any time of year, consider sitting down to create or update your estate plan. It’s a gift that will resonate far beyond the moment, ensuring that your love and care continue to guide your family and loved ones for generations to come. 

December 11, 2024

Estates and Trusts

Race to the Sunset: Critical Insights for Clients on Estate Tax Exemptions ending in 2025

As we approach 2025, it is important to stay informed about the upcoming changes to federal estate and gift tax exemptions. Under the Tax Cuts and Jobs Act (TCJA) of 2017, the estate and gift tax exemptions were temporarily increased and are currently $13.61 million per individual in 2024 (adjusted annually for inflation) and will go up to $13.9 million in 2025. However, this law will expire at the end of 2025, potentially reverting the exemption to pre-TCJA levels. Understanding the impact of these changes and seeking guidance on tax mitigation and estate planning is crucial. What is the Sunset Provision? The TCJA's temporary increase in the federal estate tax exemption allows individuals to pass on up to $13.61 million (adjusted for inflation) at death without incurring federal estate taxes and make up to $13.61 million in lifetime gifts. Without further intervention from Congress, after December 31, 2025, this exemption is expected to revert to approximately $5.49 million per individual, adjusted for inflation. Projections adjusted for inflation indicate this will amount to around $6.5 million at the beginning of 2026. This will be a significant decrease from the $13.9 million exemption amount allowed in 2025. Implications for Estate Tax Liability The reduced estate tax exemption could significantly impact estates valued above the lowered threshold. Estates exceeding the new exemption will be subject to higher federal estate taxes at a rate of up to 40%, reducing the inheritance that beneficiaries receive. This underscores the need for proactive estate planning to minimize future tax liabilities. Strategic Estate Planning Ahead of 2025 With the sunset provision approaching, it's crucial for individuals to review and adjust their estate planning strategies. Key steps to consider include: Gifting Strategies: Clients may want to take advantage of the higher exemption by making significant gifts to heirs or charitable organizations before 2025. This can reduce the size of their taxable estate and help avoid higher taxes later.   Utilizing Irrevocable Trusts: Establishing trusts is a powerful way to manage and protect assets while reducing estate taxes. Trusts offer flexibility in ensuring that assets are passed on in accordance with the wishes of a client and can help mitigate estate taxes. Updating Estate Plans: Regularly reviewing and updating wills, trusts, and other estate planning documents is essential as tax laws evolve. Ensuring your estate plan is up to date with current laws and well-positioned to address the upcoming changes in 2025 is critical. Consulting Professionals: Working with estate planning professionals, including attorneys and financial advisors, provides valuable guidance on navigating these complex changes and strategies. Their expertise in tailoring estate plans to individual circumstances is key to successful tax and planning management. Action Steps for Estate Planning in 2025 To prepare for the upcoming changes, consider taking these steps: Schedule a Consultation: Meet with your estate planning attorney, financial advisor, and accountants to discuss how the 2025 changes could impact your estate plan and assets. Review and Update Estate Documents: Ensure your will, trusts, and other documents align with current goals, and consult with your trusted advisors to ensure that your plan is compliant and efficient. Explore Gifting Options: Consider making substantial gifts before the estate and gift tax exemptions decrease to maximize tax benefits and minimize future liabilities. As the 2025 sunset of estate and gift tax exemptions approaches, understanding the potential impact on your estate plan is crucial. By taking proactive steps to review your plan, explore gifting opportunities, and consult professionals, you can better navigate the complexities of estate tax planning and safeguard your assets for future generations. The sooner you consult with your estate planning attorney and financial advisors, the sooner you will be able to determine whether the sunset will impact you and get guidance on how to navigate the correct planning necessary for you to timely and adequately address the TCJA.  Post-2024 Election Considerations During Donald Trump’s initial term as president, the TJCA was introduced and passed. In light of the recent election results, we can expect that there will be a push to renew and extend the TCJA. If the TCJA is extended, it could allow the estate and gifting annual and lifetime exemptions to remain in place and to further increase annually by adjustment for inflation provisions. This would continue the greatest transfer of wealth in history, allowing individuals to pass larger gifts to their loved ones or establish more complex plans to take advantage of gifting techniques as part of the transfer of wealth. Clients should continue to speak with their financial advisors and estate planning attorneys to remain updated on the TCJA and the potential sunset. 

November 13, 2024

Estates and Trusts

Inheritance Rights of Domestic Partners: A Comparison Between New York and New Jersey Laws

Domestic partnerships are legal arrangements between two individuals that grant some of the same rights and benefits as marriage. While domestic partnerships are recognized in many states, inheritance rights can differ greatly depending on the jurisdiction. This article explores the critical differences in inheritance rights for domestic partners under the laws of New York and New Jersey. Qualifying for Domestic Partnerships The qualifications for entering into a domestic partnership in New York and New Jersey are largely similar. Generally, both partners must: Be residents of the county or city where they are applying. Be at least 18 years old. Be unmarried and unrelated by blood. Be in a close, committed personal relationship for at least six months. Not have been in another domestic partnership within the six months prior to applying. Inheritance Rights in New Jersey In New Jersey, domestic partners are granted specific inheritance rights if their partner dies intestate (without a valid will). The surviving partner’s share of the estate depends on several factors: If the deceased partner has no children or parents, the surviving partner inherits 100% of the estate. If the deceased partner is survived by children who are also the children of the surviving partner, the surviving partner inherits 100% of the estate. If the deceased partner has a surviving parent, the surviving partner is entitled to the first 25% of the estate (with a minimum of $50,000 and a maximum of $200,000) plus 75% of the remaining estate. If either the deceased partner or the surviving partner has a child from another relationship, the surviving partner is entitled to the first 25% of the estate (with the same minimum and maximum) plus 50% of the remaining estate. Additionally, New Jersey law grants the surviving domestic partner priority to serve as the legal representative (administrator) of the deceased partner’s estate. Inheritance Rights in New York In contrast, New York does not grant inheritance rights to surviving domestic partners if their partner dies intestate. Without a will, the deceased partner’s assets will be distributed as follows: The deceased partner’s assets will go to their children, not their partner. If there are no children, the assets go to the deceased’s partner’s surviving parents. If they are not survived by children or parents, the assets pass to the deceased partner’s siblings. In the absence of children, parents, or siblings, the deceased partner’s assets may pass to distant relatives, such as nephews or cousins, leaving the surviving partner no share of the estate. Moreover, a surviving partner in New York does not have the right to serve as the legal representative (administrator) of the deceased partner’s estate. For couples in domestic partnerships in New York, comprehensive estate planning is essential. Without a will or other legal instruments, the surviving partner has no legal claim to the deceased partner’s assets and no right to act on behalf of the estate. The Federal Landscape: Domestic Partnerships and Estate Taxes It is also important to note that the federal government does not recognize domestic partnerships. Unlike married couples, domestic partners do not benefit from the federal estate tax exemption for spouses. As a result, a surviving partner may face estate taxes on any assets they inherit from their deceased partner. Additionally, if a partner inherits a qualified retirement account (such as a 401(k) or IRA), they cannot roll over the account into their own retirement account. This limitation can result in significant additional income tax liabilities on inherited retirement funds. Conclusion The inheritance rights and legal benefits for domestic partners vary significantly from state to state. In New Jersey, domestic partners are granted certain inheritance rights and legal privileges, including the ability to serve as the estate representative. In contrast, New York provides no automatic inheritance rights or authority over a deceased partner’s estate for surviving domestic partners. Due to these significant differences, domestic partners—especially those in states like New York—should prioritize estate planning. Careful planning ensures that a domestic partner’s wishes are clearly outlined, and their surviving partner is appropriately protected. Consulting with an attorney experienced in estate planning and domestic partnerships is essential for navigating these complex legal issues.

November 13, 2024

Estates and Trusts

Defensive Estate Planning For the LGBTQ+ Community

The political landscape has shifted, and those of us in the LGBTQ+ community are worried about what the future may hold. There is a lot to lose, and the new administration promises to be decidedly anti-gay. The rights of same-sex couples, adoptive parents, transgender individuals, and queer youth could well be in jeopardy. Among these is the simple right to get married. In Dobbs v. Jackson, the Supreme Court decision that overturned Roe v. Wade, one justice suggested revisiting Obergefell v. Hodges, the landmark ruling that legalized same-sex marriage nationwide. The right to marry was a milestone victory for the LGBTQ+ community. With the arrival of a new administration and conservative majorities in both houses of Congress, an emboldened Supreme Court could strike down marriage equality. With so much at stake, it is more important than ever to harness the protections the law currently provides. The Benefits of Marriage For couples in committed relationships, the best protection may well be marriage itself. Marriage not only provides a wide range of federal and state legal benefits; it also ensures that in a crisis, your spouse has essential rights regarding inheritance, health care decisions, and other critical matters. Taking advantage of the right to marry now—while it is still secure—could be a prudent move. Before tying the knot, talk to a lawyer to ensure that you understand the state and federal benefits, as well as the tax obligations. For example, being married means having to file your annual tax returns as a married couple, and some couples will pay more in income taxes under the “marriage penalty.” But most couples pay less in taxes, and they enjoy a sense of security that simply being partners may not provide. If the Supreme Court decided to overturn Obergefell, it would mean that marriage equality would no longer be federally protected, leaving it up to individual states to determine whether to allow same-sex marriages. This could lead to a patchwork of state laws, some continuing to permit same-sex marriage and others outlawing it. Already having a marriage license will help guard against such uncertainty. The Importance of Estate Planning Marriage confers significant legal benefits, but a marriage license alone isn’t enough. No matter what the future holds for same-sex unions, an estate plan will help protect your relationship from some of life’s most significant uncertainties. 1. Will The backbone of most estate plans, a will specifies how your assets should be distributed upon your death, who will care for any minor children, and who will be responsible for settling your estate. For same-sex couples, wills are particularly important to ensure that each partner is legally recognized as an heir. Without a valid will, your partner may not inherit your property automatically, and your assets could go to family members who do not have your best interests at heart. 2. Powers of Attorney If you should ever become incapacitated, someone would need to pay your bills, file your taxes, and possibly even sell your home if the incapacity appears to be permanent. A power of attorney will authorize a partner, spouse, or other trusted individual to take on this role. If you have no power of attorney, it could be necessary for someone to become your legal guardian. This is an expensive and time-consuming process, and it involves a court hearing. At just a few pages, a power of attorney can prevent the need for a guardianship and save your loved ones a lot of stress. In Maryland, it’s helpful to have the state’s statutory power of attorney, which banks and other entities are obligated to accept. You can even include special instructions in the document, such as authorizing your attorney in fact to make gifts on your behalf. 3. Advance Medical Directives An advance directive enables you to name a “health care agent”—someone you trust who will manage your health care if you ever become incapacitated. It also says what kind of care you want to receive in an end-of-life situation, like a terminal illness. If you have a partner, naming them as your agent helps ensure that they have the legal right to make critical medical decisions on your behalf. Without such a document, hospitals or medical staff may default to family members who may not recognize or support your relationship. Being married means your spouse automatically has the legal right to make medical decisions for you. But an advance directive is an important backup. It ensures that your spouse is in charge even if your marriage is not recognized, and it names a backup agent in case your spouse is not available. For trans individuals, an advance medical directive can also help make their care as dignified as possible. For example, the document can instruct your healthcare providers to address you by your preferred name and pronouns, regardless of your legal name or the gender marker on your driver’s license. This simple provision can prevent the distress of being called by the wrong name at an especially vulnerable time. To help prevent being misgendered, you can also request that your appearance be maintained to align as much as possible with your stated gender. Including this instruction in an advance directive will alert your healthcare providers as to your wishes and also help your healthcare agent ensure that they are followed. 4. Trusts In addition to a will, many people choose to set up a trust to manage their assets during their lifetime and distribute them efficiently upon their death. A trust allows you to specify how your assets will be used for the benefit of your loved ones, and it can enable them to bypass the lengthy probate process. A trust is also more private than a will. In a hostile political environment, having a trust can protect your privacy as a member of the LGBTQ+ community. Second-Parent Adoptions Less certain than the right to marry is the future of adoptions by same-sex couples. If one parent has a legal connection to a child, such as through birth, it’s smart to have the other parent file for a “second-parent adoption” to create a clear legal relationship. (This will require the consent of the child’s other biological parent.) A court order giving the second parent full legal rights will prevent problems when enrolling the child in school or accessing their medical records. Trans Individuals The incoming administration has directed some of its harshest rhetoric at the transgender community. Because the laws may shift in ways that limit protections for trans individuals, it’s a good idea to take steps now to safeguard your rights. For someone who is transgender or in transition, these might involve legally changing their name to reflect their gender identity or choosing a gender-neutral name that aligns with their preferences. It’s also important to update the gender marker on their birth certificate. In many states, a new birth certificate will be issued—rather than an amended version—showing the updated name and gender marker. A legal name change can occur at any time, regardless of the stage of the person’s transition. Once the change is final, they should notify Social Security and the Motor Vehicles Administration of the new name. Having a driver’s license and Social Security card bearing the new name will make it easier for other agencies and businesses to update their records as well. And, of course, your will, power of attorney, and advance directive should be updated to reflect your new name as well. Conclusion These are challenging times. The good news is that the legal rights of the LGBTQ+ community are still largely intact, even with the future uncertain. By acting now, you can enjoy some peace of mind, knowing that you have taken important steps to protect yourself and those you care about. This article appeared in the May 2025 edition of Maryland OUTLoud.

November 8, 2024

Estates and Trusts

The Key to Succession Planning: A Revocable Trust

How can you ensure your legacy endures and your loved ones are spared unnecessary heartache during a challenging time? Succession planning is one of the most crucial aspects for securing financial stability and ensuring a smooth transition of wealth across generations upon the death of a business owner. Proactive planning today can save loved ones future confusion, stress, and financial strain. Among the many tools available for succession planning, a revocable trust stands out as one of the most versatile and effective methods for securing one's legacy and preserving the value of a business. What is a Revocable Trust: A revocable trust, also known as an “inter vivos” or "living” trust, is a legal document that allows an individual, known as the grantor, to transfer ownership of their assets, including a business, into a trust for their own benefit during their lifetime. Simply put, a trust can be the proverbial bucket in which you “hold” your assets. The grantor can revise the document at any time, adding or removing assets or even revoking it entirely if circumstances change. Upon the grantor’s death, the trust becomes irrevocable, and the designated successor trustee—the person named by the grantor to manage the trust after their death—distributes the trust's assets according to the terms outlined in the trust document. Unlike a Last Will and Testament, which becomes effective only after death, a revocable trust functions during the grantor’s lifetime. It provides control over assets while simplifying asset distribution after death by avoiding the probate process required with a Last Will and Testament. Key Benefits of Using a Revocable Trust in Succession Planning: Avoiding Probate: One of the primary advantages of a revocable trust for a business owner is that assets held within the trust bypass the probate process. Probate is a public, court-supervised process that can be lengthy, costly, and stressful for heirs. During probate, the deceased’s assets, including business assets, can be frozen during the pendency of a probate proceeding. When a business is one that needs daily attention, services customers, runs a payroll, and has employees, even a short delay could mean financial ruin. With a revocable trust, the appropriate party can step in immediately to manage the business, allowing for uninterrupted operations and quick, private inheritance for beneficiaries. Maintaining Privacy: Probate is a public process, meaning the estate details—including the business assets owned by the decedent and their beneficiaries— become a matter of public record (as illustrated by the widely reported Last Will and Testament of actor James Gandolfini, published on the first page of the New York Post). A revocable trust, however, remains private, ensuring a discreet transfer of assets and protecting family members from unwanted attention, potential disputes, and estate contests. Flexibility and Control: The grantor of a revocable trust retains control over the assets placed in the trust, allowing for the addition or removal of assets as needed. Business interests, investments, and real property owned in different states can all be titled in the same trust, creating an organized structure for asset management. This flexibility allows for updates as family dynamics or financial situations evolve (consider the 5D’s), ensuring the trust remains adaptable and effective throughout changing circumstances. Protection for Beneficiaries: If you have young or financially inexperienced beneficiaries, a revocable trust can also protect their inheritance by establishing “sub-trusts” specifically for them. Simply put, the grantor’s trust can contain additional trusts to benefit the beneficiaries. These sub-trusts provide guidelines and stipulations for how and when distributions to the beneficiaries are made, providing structure and oversight. When business assets are left to inexperienced beneficiaries, these guidelines and stipulations are particularly helpful, and a trustee can be appointed who has familiarity and understanding of the business to ensure that those interests are protected. Sub-trusts are particularly useful for parents or grandparents looking to ensure that minors or financially vulnerable beneficiaries are cared for responsibly, preventing unrestricted access to valuable business assets. Incapacity Planning: In the event that the grantor becomes incapacitated, even temporarily, a revocable trust allows for seamless management of their affairs by a designated successor trustee. This trustee, selected by the grantor, can be someone well-versed in both the business operations and the grantor's family dynamics. Appointing a competent successor trustee in advance can effectively manage potential financial and administrative crises, helping to avoid the need for a court-appointed guardianship, which can be a lengthy and an emotionally taxing process. Avoidance of Disputes: A revocable trust clearly defines named beneficiaries, ensuring they receive their inheritance without being involved in the probate court process. In New York and many other states, next of kin, who may not even be beneficiaries named in the Last Will and Testament, are notified of their family member’s death and provided the opportunity to appear in court and dispute the terms of the Last Will and Testament. However, with a revocable trust, there is no probate court proceeding, eliminating the notification requirement for disinherited individuals. This absence of a court process makes it significantly more challenging to dispute the terms of a revocable trust. Securing Your Legacy Succession planning with a revocable trust provides control, flexibility, and protection for both the business owner and their beneficiaries. By securing financial stability and continuity in business operations, even after the death of the owner, a revocable trust can be a valuable component of a comprehensive estate plan. Whether you are in the process of building your business or preparing for sale or succession, or planning your legacy, consider the use of a revocable trust to protect your family’s future with confidence.

November 4, 2024

Estates and Trusts

Why Your Estate Plan Might Need a Tune-up

An estate plan is a set of papers that usually includes a will, durable power of attorney, and advance medical directive. These essential documents can help you manage financial and health-related matters if you ever become incapacitated, and they should provide for the efficient transfer of your assets upon your death. In other words, an estate plan is a hedge against uncertainty, a defense against the curveballs life may toss your way. An up-to-date plan can help you minimize death taxes, protect your assets from creditors, provide for your loved ones, establish trusts for your children, and appoint guardians to care for them. Although estate-planning documents don’t “expire,” they can become out of date and ineffective if your life circumstances have changed. This is when a “tune-up” may be in order. A phone call with an Estates & Trusts attorney is advisable if any of the following apply to you — You have had children or gotten married or divorced. Someone named in your documents has died. You have bought or sold real estate (in Maryland or elsewhere). Your assets have changed significantly. Even if your circumstances are largely unchanged, it is still recommended that you review your plan every three to five years. Tax laws change, new planning techniques become available, and updated documents can offer important new benefits. It’s also possible that your wishes have changed since your documents were drafted. For example, do you want to update the list of people who will inherit from you? Is it time to change the individuals who will settle your estate, act as your trustees, or serve as guardians to your children? Do your financial power of attorney and advance medical directive still name the right people to manage your affairs if you no longer can? An attorney who specializes in this area can help you think through your planning goals and suggest your best options for achieving them. Even if no changes to your documents are necessary, receiving the assurance that you are ready for the unexpected is reason enough to speak with a planning professional today. Of course, if you don’t already have a current estate plan, there is no better time than the start of a new year to put your affairs in order. Making decisions today about your will, power of attorney, and advance medical directive can bring you peace of mind and a new confidence about what lies ahead. Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.

October 30, 2024

Estates and Trusts

The Gift of Planning Your Estate

As 2024 draws to a close, the season of giving that rounds out the year will once again be upon us. As you fill your shopping list with festive sweaters, cool electronics, and other treasures, consider planning for the unexpected as a gift to the people you care about. Estate planning is a good place to start. Consider the consequences if something were to happen to you. Would someone you trust be allowed to take care of you and manage your health care? With an advance medical directive, you can put the right person in charge in case you ever become unable to speak for yourself. This person could then work with your doctors to help ensure that your care is appropriate and in keeping with your wishes. As part of a complete estate plan, an advance directive also enables you to make choices for serious, end-of-life situations such as a terminal illness. Would you simply want to be kept comfortable, or would you prefer to have more aggressive measures taken? These are tough questions to consider. But wresting with them in advance, before the need arises, will make life easier for the people who care about you. What about your finances? If you should ever become incapacitated, someone would need to pay your bills, file your taxes, and possibly even sell your home. A power of attorney will authorize a trusted friend or family member to take on this role. If you have no power of attorney, it could be necessary for someone to become your legal guardian. This is an expensive and time-consuming process, and it involves a court hearing. At just a few pages, a power of attorney can prevent the need for guardianship and save your loved ones a lot of stress. It is also important to plan for what happens if the worst comes to worst. Upon your death, who would settle your estate? Who would inherit your assets? If you have minor children, who would their guardians be? Should they receive their inheritance through a trust or outright? The best way to sort through these questions is to speak with an attorney who can guide you through the planning process. In addition to helping you explore your options; the attorney can draft a will and other essential documents. A complete estate plan will also address things like updating the beneficiaries on retirement accounts and life insurance policies. It will help ensure that your “digital assets,” like online accounts, frequent flyer miles, and credit card award points, are included in your estate. It will also give you an opportunity to plan a meaningful memorial service that reflects your wishes and beliefs. The effort that goes into creating an estate plan can be considered a gift. It is, first of all, a gift to yourself. With your plan complete, you can enjoy the peace of mind that comes from knowing that, as much as possible, you are ready for what lies ahead. An estate plan is also a gift to the people you love. A minimum amount of stress will enable them to care for you if you can’t care for yourself. It will also save them time, money, and worry when you are no longer in the picture. Whether you have a spouse or partner, children, or just dear friends, consider preparing an estate plan as a gift to them. As Booker T. Washington said, “Those who are happiest are those who do the most for others.” Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.

October 30, 2024

Estates and Trusts

The Easy Way to Leave Your Car to a Loved One

When someone dies, their car is often the first thing the heirs will ask about. Who gets it, they wonder, and how long will it take to transfer the title? Whether the vehicle in question is a gleaming new SUV or a humble and aging hatchback, getting it to the new owner can be a priority. A car can sit for only so long before maintenance problems develop, and the deceased owner’s estate will be responsible for paying insurance premiums in the meantime. When the vehicle is part of the deceased owner’s estate, the estate must generally be opened before the title can be transferred. Although the process is relatively efficient, it can take time. A death certificate must be obtained, a bond purchased, and the whereabouts of any Last Will and Testament determined. These documents are submitted to the Register of Wills in the county where the decedent lived. Once everything is in order, the personal representative (executor) will receive “Letters of Administration,” which give him or her the legal authority to deal with the car and other assets of the estate. All told the car may have to sit for days or weeks before its new owner can take possession of it. To streamline the transfer, the Maryland MVA allows you to designate a beneficiary for your vehicle right on the title. For a nominal fee, you can have a new title prepared that names the person or business that will receive the vehicle upon your death. Under this arrangement, the car will no longer be part of your probate estate but will instead transfer to the named beneficiary regardless of what your will might say or whether your estate has even been opened. When the time comes, the person you have named can simply visit an MVA office to transfer the title to your car. There will be no need to wait until the estate has been opened, and if the Department of Health and Mental Hygiene has been notified of your death, there won’t even be the need to show a death certificate. The MVA requires that the vehicle have only one owner and be titled in Maryland. A beneficiary can be added even if there is a lien on the vehicle. Before the car is transferred to the beneficiary, any liens must first be satisfied, or the lien holder can give the beneficiary a letter of permission to transfer ownership. Adding a beneficiary won’t affect your ownership of the vehicle during your lifetime, and you can still sell the car whenever you want. If you change your mind about who should receive the car, you can delete or change the beneficiary designation anytime. There is, however, a fee to add, delete, or change a beneficiary to a vehicle’s title. When the time comes, it won’t be necessary to have the vehicle inspected if the beneficiary is your spouse, child, or parent. Even the vehicle registration can be transferred if the new owner is a member of your immediate family. A transfer to an unmarried partner, a niece or nephew, or a friend will require the purchase of new registration plates. Naming a beneficiary for your car is like adding a “transfer on death” provision to a bank account or designating a beneficiary on a life insurance policy or retirement account. These provisions can help streamline the administration of your estate, but it’s advisable to speak with an estates and trusts attorney before you get started. Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.

October 30, 2024

Estates and Trusts

Protecting a Loved One’s Benefits With a Special-Needs Trust

Caring for someone with special needs is both a burden and a privilege. Although the challenges can be all-consuming, the rewards are often deeply gratifying. Few of us who don’t bear this burden can fully understand the level of commitment required. For many caregivers, this commitment extends to remembering the individual with disabilities in their wills. This is a commendable impulse, but it is important to proceed cautiously. Without proper planning, an inheritance left to someone on government assistance can lead to nothing short of disaster. The difficulty stems from the nature of public assistance. Some benefits, such as Medicaid and Supplemental Security Income (SSI), are “means-tested.” This means they are available only to individuals with disabilities whose assets are below a certain level. Leaving any kind of inheritance to someone who receives means-tested assistance can cause these benefits to be taken away. And for the person with disabilities, government benefits can be critical. SSI is a federal program administered by the Social Security Administration that pays monthly stipends to people who are elderly or disabled. Medicaid provides health care benefits and many other programs that can enhance the quality of life of people with disabilities. Importantly, Medicaid coverage is automatically granted to individuals receiving SSI in Maryland and many other states. Under Social Security rules, a person with disabilities with more than $2,000.00 in assets cannot receive SSI and, therefore, will not qualify for Medicaid. As a result, leaving a bequest to an individual with disabilities can do more harm than good. This problem can be circumvented by setting up a special-needs trust. This type of trust includes language that requires the trustee to pay only for items the government isn’t paying for. In this way, the trust supplements the person’s public benefits without jeopardizing them. Because the beneficiary cannot compel the trustee to make a distribution, the government does not take the trust assets into account when determining whether the beneficiary qualifies for public assistance. In other words, a special-needs trust creates the illusion of poverty, which allows someone with special needs to receive an inheritance while leaving their government benefits intact. Choosing the right trustee is essential. In addition to having the beneficiary’s needs at heart, this person must understand special-needs trusts and their rather arcane rules. For example, the trustee may not pay for the beneficiary’s food or shelter unless they are enjoyed while the beneficiary is away from home—say, on a vacation. Sending the beneficiary a gift card is also not allowed unless it’s for an establishment like a gas station that sells only things that are allowable expenses under the trust rules. The trustee should consult with an attorney to avoid any missteps. As a practical matter, a special-needs trust is typically set up through the caregiver’s will. Called a testamentary trust, it can be funded with the caregiver’s ordinary assets like bank accounts and real estate. In addition, the trust can be named as the beneficiary of the caregiver’s life insurance policy or retirement account. Another approach is to establish the trust in the caregiver’s lifetime. This type of trust, called an inter vivos trust, can be funded directly by contributions from the caregiver or from the friends and family of the beneficiary. These individuals can also name the trust as a beneficiary of their wills and other assets. Whether a testamentary or inter vivos trust is to be established, the assistance of an attorney is essential. The tax implications of setting up a special-needs trust are numerous and complex, and the laws affecting trusts in Maryland have recently changed. Properly done, however, the trust can be an essential legacy to help someone with special needs. Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.

October 29, 2024

Estates and Trusts

Estate Planning for the Newly Divorced Woman: A Critical Step Toward Your Future

Divorce is an emotional and often life-changing experience, regardless of whether it is amicable or contentious. For many women, especially those who have been married for years, it can feel like stepping into the unknown. As a newly divorced person, you may find yourself grappling with a whirlwind of financial, emotional, and logistical challenges. One crucial aspect that often gets overlooked during this transitional period is estate planning. After a divorce, the financial landscape shifts dramatically, necessitating an urgent need to review and potentially restructure your estate plan. Whether you had an estate plan in place during your marriage or are considering one for the first time, having a proper plan is essential to safeguard your assets, protect your children, and secure your future. Suffice it to say estate planning should be a top priority for newly divorced women. Update Your Will and Trust: Control Over Your Legacy During your marriage, your Last Will and Testament or Revocable Trust likely reflected decisions made with your former spouse in mind. After a divorce, these documents require a comprehensive overhaul. One immediate change to consider is removing your former spouse as a beneficiary unless there are specific legal obligations, such as alimony or child support, that necessitate their inclusion. Additionally, if you have children, your prior will may have named guardians for them. In light of your changed family structure, consider appointing different trustees for the funds you intend to leave to your children. While your former spouse retains certain rights as a biological parent, your estate plan allows you to designate who will manage your children's inheritance if something were to happen to you.   Change Beneficiaries on Life Insurance and Retirement Accounts It is imperative to change the beneficiaries on life insurance policies, retirement accounts (such as IRAs and 401(k)s), and any other accounts where your former spouse is named. Accounts with designated beneficiaries pass directly to the listed beneficiary, bypassing the terms of your Will or Trust. Failing to update this information may result in your former spouse receiving these funds, regardless of your divorce. Many mistakenly assume that their divorce automatically revokes outdated beneficiary designations; however, this is not always the case. To ensure your assets are allocated to the correct beneficiaries, update these designations immediately. Consult your matrimonial attorney before making changes if your divorce is not yet final, as restrictions may apply. Revisit Powers of Attorney and Health Care Proxies An often-overlooked aspect of estate planning post-divorce is updating your powers of attorney (POA) and health care proxies. If your former spouse was named to make financial or medical decisions on your behalf, this designation should be revisited. While some states automatically revoke these fiduciary appointments upon divorce, others do not. Depending on your state, failing to update these documents could allow your former spouse to control your medical decisions and finances during a vulnerable time. Taking charge of this now is one of the most empowering steps you can take toward your newfound independence. Even if your state automatically revokes a former spouse’s right to act as a fiduciary under a POA or a health care proxy, it is imperative that you have a successor to act in your former spouse’s stead. As with any fiduciary role, you must appoint someone you trust: whether it is a family member, a close friend, or an adult child, someone should be appointed to handle these responsibilities should you become incapacitated. Planning for Your Children’s Future Divorce significantly impacts your minor children’s future—emotionally, financially, and legally. Although your former spouse retains certain financial and custodial rights, you can use your estate plan to specify your wishes regarding their upbringing and financial care. Consider establishing a trust for your children to ensure their inheritance is managed responsibly by someone you trust, particularly if you have concerns about your former spouse’s financial management. Appoint a trustee who will oversee the disbursements to your children over time, even if your former spouse is their guardian. Post-divorce is also a good time to reassess your life insurance needs. You may need additional coverage to ensure that your children are well provided for in the event of your passing, especially if you are the primary caregiver or breadwinner post-divorce. Protect Your Assets and Build a New Financial Legacy It is well-known that divorce has a disparate financial impact on women versus their spouses. Divorce often leaves the divorced woman in a starkly different financial position than what she had during her marriage. You may now own a home solely in your name, with the bills to match. Proper estate planning and consultation with a trusted financial planner provide you with knowledge and control over how these assets are distributed when the time comes.  Proper planning provides a platform for you to rebuild and protect your financial legacy for the future. If your spouse previously managed the family finances, it is not uncommon to feel uncertain about your financial independence. Even if you were the primary financial manager, your current financial landscape may differ significantly from what it was during your marriage.  Working with an estate planning attorney and a trusted financial advisor will help you get organize your finances, understand your current standing, and plan for long-term security. Moving Forward with Confidence Divorce marks the end of one chapter while opening the door to new beginnings. Though the process can be overwhelming, estate planning is an essential tool that offers clarity and control. By taking proactive steps now, you can ensure that your assets, loved ones, and legacy are protected as you embark on this new phase of your life. Partnering with a trusted estate planning attorney will guide you through this process, allowing you to focus on rebuilding your life with confidence. You have the power to shape your future, and estate planning is one of the most empowering steps you can take.

October 28, 2024

Elder Law and Advocacy

Elder Abuse Exposed: Understanding the Crisis and Lessons from Stan Lee’s Story

Elder abuse is a widespread issue that impacts millions of elderly individuals worldwide. It often manifests in different forms, including physical abuse, emotional or psychological mistreatment, neglect, and, most commonly, financial exploitation. Vulnerable older adults—particularly those experiencing cognitive decline, frailty, or social isolation—are particularly at risk. Among the most high-profile cases of elder abuse in recent years involves Stan Lee, the legendary creator of Marvel Comics. Understanding Elder Abuse Elder abuse can happen anywhere, including in homes, nursing facilities, or even public spaces. A common factor among these cases is that the abuser is generally someone trusted by the elder, such as caregivers, significant others, or family members. In fact, statistics reflect that nearly 60% of financial abuse is committed by a spouse, significant other, or family member. According to the World Health Organization (WHO), one in six people aged 60 and older has experienced some form of abuse in community settings within the past year. The actual numbers are likely much higher, as many cases of elder abuse go unreported due to fear or shame. Stan Lee: A Victim of Elder Abuse Stan Lee, the co-creator of iconic superheroes like Spider-Man, the X-Men, the Avengers, and many other beloved superheroes, passed away in 2018 at the age of 95. His final years were overshadowed by a deeply troubling elder abuse scandal. After losing his wife and advocate of 70 years, Lee's physical and mental health deteriorated significantly, leaving him increasingly dependent on others to manage his personal, financial, and creative affairs. Allegations emerged that Lee fell victim to financial and emotional abuse at the hands of his former business manager, who had become a trusted confidant. As with most elder abuse cases, the manager allegedly isolated Lee from his family and longtime associates, seized control of his finances, misappropriated millions in assets, coerced him into public appearances, and restricted access to family members and those who had supported Lee for decades. Furthermore, this manager even relocated Lee into a new home without informing his only child.  The Financial Exploitation of Elders Lee's case is not an isolated incident; financial exploitation is the most common form of elder abuse. While Lee's situation is noteworthy due to the unusual occurrence of financial exploitation among wealthy individuals with significant assets, elders of all economic backgrounds—especially those with diminished mental capacity—are at risk of manipulation and exploitation. In Lee's case, the exploitation was particularly egregious, given his status as a global pop culture icon with a multimillion-dollar estate. Although Lee experienced rapid exploitation within a year following his wife's death, most financial abuse unfolds slowly and subtly. It is important to keep in mind that this financial abuse can manifest as forgery, coercion in managing finances under the guise of assistance, or through more sophisticated and deceptive schemes involving multiple perpetrators. Sadly, statistics indicate that abuse and exploitation disproportionately affect elders with more modest means—those least equipped to handle economic setbacks in their later years. Alarmingly, nonwhite elders are particularly vulnerable, with reports showing they are 200% more likely to suffer from elder abuse compared to their white counterparts. Legal Protections and Reporting Cases like Lee's illustrate the urgent need for improved legal protections and reporting mechanisms for elder abuse. Although laws aimed at combating elder abuse exist, enforcement is frequently lacking. Most elderly individuals lack the capacity to seek help, which is often what makes them vulnerable in the first place. Alarmingly, those who might normally report such abuse are often perpetrators themselves. These factors, combined with the shame and fear associated with reporting, severely hinder the prosecution of these crimes. While many elder abuse units exist within law enforcement, significant gaps remain in the system due to a lack of resources and, from my perspective, a lack of empathy for senior victims.  What We Can Learn from Stan Lee's Story The tragic story of Stan Lee's elder abuse serves as a powerful reminder that even the most celebrated individuals can fall victim to exploitation in their later years. It underscores the critical need for planning ahead and vigilance from both loved ones and legal authorities to protect vulnerable elders from abuse. For those caring for elderly loved ones, staying engaged, monitoring financial activities, and advocating for their well-being is essential. Preparation for potential incapacity can also help prevent victimization. Aging loved ones should have the proper legal documentation in place, such as a Power of Attorney and Trust instruments, which empower them to designate trusted individuals prior to their incapacity. Proper legal authority and the appointment of reliable individuals in positions of trust reduce the risk of exploitation by bad actors. Preparing for potential incapacity can also help prevent victimization. Aging loved ones should have essential legal documentation in place, such as a Power of Attorney and Trust instruments, which empower them to designate trusted individuals before they become incapacitated. Proper legal authority and the selection of reliable individuals in positions of trust reduce the risk of exploitation by bad actors. Despite the flashy headlines of Mr. Lee's case, elder abuse remains a largely hidden crisis. Greater societal acknowledgment of its existence, coupled with stronger legal protections, will better ensure that our elderly population can live with dignity and security. Protecting elders from exploitation is a moral imperative that requires collective awareness, legal guidance, and action. Whether famous or not, senior adults deserve respect, care, and protection in the twilight of their lives, allowing them to age with dignity.

October 2, 2024

Estates and Trusts

The Estate Planning Benefits of Marriage: What Unmarried Couples Need to Know

It is becoming increasingly commonplace for people to enter long-term romantic relationships without legally marrying. While there are no exact statistics on how many Americans fall into this growing category, a 2019 Pew Research Center study estimated that 12% of Millennials were living with an unmarried partner, compared to 8% of Gen Xers—an increase of 50% from one generation to the next. While this trend is influenced by various social and political factors, many of these couples may not fully appreciate the extensive economic and legal benefits they forgo by remaining unmarried to their partner. In fact, over 1,000 federal laws provide legal benefits and privileges to married couples. It is beyond this article's scope to discuss every way in which the law favors married couples. Rather, this article will highlight just a few of the many estate planning benefits and opportunities that are conferred on married couples that are not shared by unmarried couples. As I will illustrate, often with little planning, married couples can defer, reduce, or completely eliminate taxes. Unlimited Marital Deduction - Lifetime Gifting Any gift exceeding the annual gift tax exclusion amount, which in 2024 is $18,000 per donor per recipient, is a taxable gift that must be reported by filing a gift tax return (IRS Form 709). However, there is a very significant exception to this rule. One spouse may convey to the other spouse an unlimited amount of assets at any time and as often as desired without incurring any gift tax liability. This creates many estate planning opportunities. As just one example, married couples can strategically retitle assets between each other to maximize the “step-up” in the capital tax basis that these assets receive at death. The “step-up” means that any appreciation in an asset from when the decedent first acquired it gets wiped away at death, and the recipient receives the asset with an adjusted capital tax basis as of the decedent’s date of death. Thus, married couples can convey assets to each other so that upon the death of the first spouse, the surviving spouse receives highly appreciated assets with a one-half or even full step-up, saving significant capital gains taxes when the asset is later sold. Unlimited Marital Deduction – Inheritance The unlimited marital deduction also applies to transfers between spouses at death, shielding the surviving spouse’s inheritance from any estate taxes. This powerful tool allows the surviving spouse to defer the payment of any estate taxes resulting from the first spouse's death for their entire lifetime. This gives the surviving spouse time to spend down or gift these assets to minimize or eliminate estate tax liability for their future heirs at the time of their death. The unlimited marital deduction is also key to “by-pass” trust planning, a technique that ensures that no estate taxes are owed at the death of the first spouse while maximizing the use of their estate tax exemption. By-pass trust planning works as follows: upon the first spouse’s death, two trusts are established for the surviving spouse’s benefit. One trust is funded with assets up to the estate tax exemption amount, allowing these assets to continue to appreciate outside the surviving spouse’s estate. When the surviving spouse passes away, this trust terminates, and the assets are distributed to the ultimate beneficiaries free of estate tax. The second trust is funded with the remaining estate assets and is structured to take advantage of the unlimited marital deduction. Portability A spouse may claim the deceased spouse’s unused exemption (DSUE) for their later use via a concept known as portability. To claim the DSUE of the deceased spouse, the surviving spouse must timely file a federal estate tax return (IRS Form 706). Unlike a “bypass” trust plan, portability requires no advanced estate planning and incurs no administrative costs or inconvenience. Regardless of any subsequent changes in the law, the DSUE will be available for the surviving spouse to benefit from in their estate. With the current estate tax exemption amount at a historical high, it is a particularly advantageous time to file an estate tax return solely for portability purposes. Those intending to rely on portability planning should be cautious, as the surviving spouse cannot claim any unused state estate tax exemption amount. Therefore, portability planning may be sufficient for residents of New Jersey, which abolished its estate tax in 2018, but it may not be adequate for residents of New York, which has an estate tax. Unused generation-skipping transfer tax exemption amounts are also not portable between spouses. Inheritance Tax For New Jersey residents, an inheritance tax is imposed on certain classes of recipients of a decedent’s estate assets. The surviving spouse, a Class “A” beneficiary, is wholly exempt from inheritance tax liability. For those married clients who wish to provide an inheritance for beneficiaries in a class that would be subject to the inheritance tax, making lifetime gifts outright or in an irrevocable trust remains a valid strategy for avoiding the inheritance tax. Inherited IRAs Before the enactment of the SECURE Act, beneficiaries of inherited IRAs were permitted to take required minimum distributions (RMDs) based on their life expectancy. A beneficiary younger than the original account owner would have much smaller RMDs, allowing the IRA assets to appreciate over a long period of time income tax deferred. The SECURE Act largely eliminated this strategy. Under current law, most beneficiaries must liquidate their inherited IRA within ten (10) years of the death of the original account holder. The SECURE Act carved out an exception to this rule; it allowed those deemed an “eligible designated beneficiary” (“EDB”) to take RMDs based on their life expectancy. Among the limited categories of EDBs, you guessed it, the surviving spouse is deemed an EDB. A husband or wife who outlives their spouse for many years could see these assets significantly appreciate over their lifetime. Moreover, the surviving spouse has significantly more flexibility in taking withdrawals above the RMD in years when the assets will be taxed at lower marginal income tax rates.   Challenges for Unmarried Couples The flip side to all the planning opportunities available to the married couple is that the unmarried couple cannot benefit from any of them. Any gifts between the unmarried couple above the annual exclusion amount would be taxable. Unmarried couples who receive the inheritance of their deceased partner’s estate may be subject to estate taxes, significantly reducing the assets that the surviving partner would otherwise have available for their support. In New Jersey, in addition to any estate tax liability, a non-married surviving partner may be subject to inheritance tax liability. Lastly, the surviving partner may not be an EDB; thus, they will need to withdraw the entire amount of the IRA within ten years, potentially losing out on years of further appreciation. Of course, the unmarried couple still needs estate planning. Indeed, if an unmarried person were to die without preparing a will or trust, the intestacy laws of most states would direct their assets automatically to children, parents, or siblings. There are also tax planning techniques available for the unmarried couple to reduce estate taxes, such as the establishment of one or more lifetime irrevocable trusts. This kind of planning, however, is more expensive, and the administration is costly and burdensome. State legislatures have taken some meaningful steps to protect the rights of unmarried couples in recent years. For example, both New York and New Jersey recognize domestic partnerships, a legal arrangement that confers some of the benefits afforded to married couples on unmarried couples. For example, a domestic partner in New Jersey is a Class “A” beneficiary, exempt from inheritance tax. However, most tax planning opportunities available to married couples remain unavailable to domestic partners. I am hopeful that future legislatures will address some of these disparities, particularly as the unmarried share of the population continues to grow. However, until that legislative fix occurs, sometimes the best planning advice for an unmarried couple in a long-term relationship is to change their marital status.

September 24, 2024

Estates and Trusts

Protecting Your Legacy: Trust and Estate Planning for Musicians

Understanding how to protect and transfer these invaluable assets can ensure that a musician's creative legacy endures and continues to benefit future generations. Embarking on the journey of music copyrights and estate planning is like composing a symphony of legal and financial strategies for musicians and their heirs. Unlike many professions, a music career brings a distinct set of legal and financial challenges, making it crucial for artists to manage their legacies with care. Given the unpredictable nature of the music industry and the substantial value of intellectual property (IP) assets, having a solid plan is not just advisable—it’s essential. Understanding how to protect and transfer these invaluable assets can ensure that a musician’s creative legacy endures and continues to benefit future generations. One of the most important things musicians must pay attention to is their IP rights. It’s important to recognize that with music copyrights there can be multiple copyrights involved in a single song, including the copyright of the composition and the lyrics if they were composed with a partner and separately from the score. So, there are a lot of moving parts to track with a musical piece.  Understanding the basics of music copyright is essential before delving into estate planning. A copyright is a collection of legal rights initially owned by the author, including the right to perform the work publicly. These rights are treated like other intangible assets and can be owned jointly, held in trust, or transferred by gift or at death. Properly inventorying and valuing your music copyrights is a critical first step in estate planning. A qualified appraiser can help determine the worth of these assets by examining their income history or market value, which aids in evaluating estate planning options and predicting potential gifts or estate taxes. Ensuring that copyrights for compositions and recordings are registered correctly and that proper powers are provided to trusted successors is key to a portfolio, inheritance, and a comprehensive estate plan. For example, assigning these rights to a trust is an excellent way to provide ongoing income to beneficiaries. Musicians must also account for how royalties should be managed and distributed. This can involve setting up trusts specifically for royalty income.  One idea is for musicians to set up management companies to handle their IP assets that can provide continuity and professional management of the musician’s works after death. Let’s take a lesson from Taylor Swift. The key lesson is to protect yourself early. Swift owned the composition of her music; however, she didn’t own the master recordings, and they were purchased without her blessing. To remedy that, Swift famously and with fanfare re-recorded her songs to secure rights to master recordings for most of her catalog.  Musicians must also carefully consider who will oversee monetizing their music and brand after they die. Who do they want to decide how their image is used, whether their songs can be used in movies or TV shows, or whether they want to be a hologram? Musicians often have dependents, such as children or elderly parents, who rely on their income. Like many who pass without advance planning or an estate plan, a musician’s assets may go through probate, a time-consuming and public process. Estate planning tools like trusts can help avoid probate, ensuring a smoother transition for heirs and provide for these dependents long-term. Estate planning for musicians also involves navigating complex tax issues, especially when significant estates that may be subject to federal and state estate taxes are involved. Proper planning, including using trusts and charitable donations, can help mitigate these taxes. Beneficiaries may have to pay taxes on royalties and other income from the musician’s IP. Structuring the estate to minimize these taxes is crucial. Musicians making substantial gifts during their lifetime should be aware of potential gift tax implications. Key Legal Instruments in Estate Planning Several legal instruments are crucial in the estate planning process for musicians: Wills: A will is a foundational document in estate planning that outlines how a musician’s assets should be distributed upon death. A will provides for the distribution of property you own at the time of your death. This can include your instruments, gear, and assets related to your music career. You can also designate who will be responsible for managing your music and other intellectual property after your passing. Generally, you may gift your property in any manner you choose. However, wills must go through probate, which can be avoided with other tools. Trusts: A trust is a legal arrangement that allows you to transfer ownership of your assets to a trustee, who can manage those assets for the benefit of your beneficiaries. This can be a useful for musicians to ensure that their loved ones are taken care of after their passing. Trusts are flexible tools that can manage and distribute a musician’s assets according to specific instructions. They can be beneficial for managing ongoing royalty streams and providing for dependents. Of importance for artists is how the handling of the intangible assets known as digital assets are managed post-mortem.  These are issues properly handled in an estate plan.  In a comprehensive estate plan, there can be multiple trust structures for planning and gifting.   Revocable Trusts: A trust created during one’s lifetime may be revocable. Like it suggests, this means it may be revoked or changed by the settlor (“Introduction to Wills—American Bar Association”). These trusts allow musicians to retain control over their assets during one’s lifetime and provide instructions for distribution after death.  Irrevocable Trusts: An irrevocable trust means it cannot be revoked or changed by the settlor.  This is useful in gifting strategies for artists considering their taxable estate.  Health Care Power of Attorney: You have the right to decide who can make decisions about your health care. These documents allow musicians to designate someone to make healthcare decisions on their behalf and outline their instruction for medical treatment if they become unable to communicate.  It is not only important to create an estate plan for musicians, but also critical that the estate plan is kept up to date. Things change, mangers change, people get divorced, and children get added, as do grandchildren. Perhaps the person who was first designated as the manager of the estate is out of the picture. It is essential to keep the estate plan up to date as circumstances change, and to make sure that family is aware of updates. In the world of music, where creativity and complexity blend, trust and estate planning strike the right chords for crafting a lasting legacy. By partnering with legal experts who understand the intricacies of intellectual property and the unique needs of entertainers, musicians can craft a plan that not only safeguards their legacy but also ensures their artistic vision endures. This thoughtful approach transforms a vibrant career into a timeless legacy, preserving the essence of their contributions for future generations. Reprinted with permission from the September 10, 2024, issue of The Recorder. © 2024 ALM Media Properties, LLC.

September 18, 2024

Estates and Trusts

Navigating NIL Deals: Why Estate Planning is Essential for College Athletes

As September brings students back to school across the country, college athletes are encountering new opportunities and challenges, particularly with the recent developments in Name, Image, and Likeness (NIL) rights. Now able to leverage their personal brand as a valuable commodity while competing at the collegiate level, athletes face a paradigm shift that requires financial literacy and strategic planning. This transformation has turned student-athletes into potential entrepreneurs, with their talents and popularity becoming marketable assets. One crucial element of a strategic plan that is often overlooked is estate planning, which can protect a student-athlete’s newly acquired assets and ensure long-term financial security. The NIL “Revolution” The National Collegiate Athletics Association’s (NCAA) decision to allow athletes to profit from their NIL rights has opened a significant and long-overdue financial door for college athletes. Now, they can capitalize on endorsement deals, social media partnerships, and even personal business ventures during their college careers rather than waiting for professional opportunities to unlock financial rewards. However, with these new earnings come added complexity. For young athletes, rapidly growing income and brand recognition introduce significant financial and legal considerations. Estate planning—often thought of as something for older individuals—becomes crucial for these athletes to manage their wealth, mitigate taxes, and ensure long-term security. Estate planning involves organizing how assets will be managed and distributed in the event of incapacitation or death. It typically includes creating wills, trusts, powers of attorney, healthcare directives, and implementing tax strategies. For college athletes, however, estate planning is not just about planning for life after death—it is about protecting assets, managing new income, and ensuring their families and loved ones are cared for in case of the unexpected. Why Should the College Athletes Plan Ahead? Asset Protection: NIL deals can yield substantial income, with earnings likely to increase as an athlete’s career progresses. A comprehensive estate plan helps protect this wealth from creditors, lawsuits, and other risks. Trusts, for instance, can provide a layer of legal protection, ensuring that the newfound fame and exposure do not lead to financial vulnerability. Trusts can also facilitate smooth transfers in the event of incapacity. Tax Efficiency:  Significant earnings from NIL deals can result in hefty tax liabilities. An estate plan can implement strategies to reduce tax exposure during an athlete’s career, into retirement, and beyond. Since tax laws vary by state, working with an expert can help athletes navigate complex tax requirements and avoid overpaying. Disability Planning: In high-contact sports like football, soccer, or basketball, the risk of injury is always present. Estate planning can include provisions for medical or financial decision-making in case of incapacitation due to injury. This ensures that a trusted individual is in place to manage the athlete’s financial affairs and act in their best interests, even if they are unable to make decisions themselves. Brand Management: For student-athletes whose personal brand significantly contributes to their earnings, estate planning can safeguard their image, likeness, and business ventures, even after their retirement.  A well-structured trust or corporate entity can hold and manage these rights, ensuring that the athlete’s brand remains protected and managed according to their wishes. The Foundational Elements of an Athlete’s Plan Last Will and Testament: The cornerstone of any estate plan. It outlines how assets should be distributed and designates guardians for any dependents, ensuring that loved ones and interests are cared for according to the athlete’s wishes. Trusts: Offer flexible tools for asset protection, tax planning, and managing income over time. They help avoid probate, reduce tax burdens, protect trust assets from potential lawsuits, and provide tailored terms for beneficiaries. Power of Attorney:  This document grants a trusted individual the authority to make financial and legal decisions on behalf of the athlete if they become incapacitated or even if the athlete is unavailable due to in-season travel, ensuring that important matters are handled effectively in their absence. Healthcare Directives: These directives detail medical care and treatment preferences and designate someone to make healthcare preferences and appoint someone to make healthcare decisions if the athlete is unable to do so due to injury or illness. This ensures that their medical treatment aligns with their wishes. Business and Brand Succession Planning: For athletes with substantial earnings from NIL deals, succession planning is crucial. This includes strategies for protecting intellectual property, trademarks, or businesses tied to their name and image. Proper planning ensures their brand and business ventures are preserved and managed in alignment with their long-term goals, even after death, to ensure that their loved ones reap the benefit of their brand well into the future. The Importance of Estate Planning in the NIL Era In the fast-paced and often unpredictable world of college sports, estate planning provides student-athletes and their families with a crucial safety net. As NIL deals continue to grow in both value and complexity, so too does the need for thoughtful estate management. Estate planning equips athletes with the tools to protect their assets, preserve their brand, and ensure their legacy both on and off the field. For any college athlete navigating the new NIL landscape, estate planning is not just a financial strategy but a pathway to long-term security and peace of mind for themselves and their loved ones. If you or your family are navigating the opportunities and challenges of NIL agreements, it’s worth considering a conversation with someone who understands both the legal and financial landscape. Candace Dellacona is available to discuss how estate planning can fit into your broader financial strategy, ensuring you’re prepared for the future.

September 17, 2024

Estates and Trusts

Writing Your Own Epilogue: How Estate Planning Can Shape Your Legacy

William Shakespeare said, “A good play needs no epilogue.” When a story is compellingly told, in other words, there is no need for commentary after the curtain falls. Like a play that is well written, a life that is well lived speaks for itself. But living well includes knowing that you have planned for what happens after you are gone. This foresight includes how easily your estate will be passed down to the people you care about. Have you written a will that names someone to settle your estate? If something were to happen to you, do you know who would receive your assets? If you have children, have you appointed a guardian to look after them and a trustee to manage their inheritance? If not, the commentary on your life could well include tales of confused intentions and mismanaged assets, of hurt feelings and squandered wealth. Fortunately, all it takes is a phone call to an estates and trusts attorney to make your epilogue your own. With your guidance, the attorney can prepare your will, durable power of attorney, and advance medical directive. These essential documents name a cast of characters who can take charge if you should die or become incapacitated. Your Last Will and Testament names a “personal representative,” or executor, who will administer your estate. Dying without a will, or “intestate,” would require someone to step into this role. The person they select could be an estranged sibling or disapproving parent, who will then have the legal authority to go through your home and distribute your possessions and other assets to your heirs. By preparing a will, you ensure that the right person is in charge of settling your affairs. Writing a will also enables you to leave your assets to the people you select. Shakespeare himself did this when he bequeathed his “second-best bed” to his wife. In addition to your spouse or partner and any children, you might consider including a charitable organization, such as an alma mater or house of worship, among your beneficiaries. Working with an attorney is an opportunity to coordinate assets like life insurance and retirement accounts with the provisions in your will. These “non-probate” assets are not controlled by your will and instead transfer directly to the named beneficiary upon your death. It’s essential, then, that these beneficiary designations work in tandem your will and are not at odds with it. Even a well-lived life can include periods of struggle. If you ever become incapacitated, a durable power of attorney can name someone you trust to manage your finances. The duties of your “attorney in fact,” as the person is called, could include paying your bills, filing your taxes, or even selling your house in order to move you into assisted living. An advance medical directive is like a power of attorney but relates to your health care. It enables you to state your wishes for managing an end-of-life illness and to name a trusted individual who will ensure that your wishes are carried out. If you lose capacity and don’t have an advance directive, the authority to make medical decisions on your behalf will fall to your next of kin. Surprisingly, this could be several people, like a group of siblings, who could have very different ideas about how to manage your care. By preparing an advance directive, you can instead name someone with your best interests at heart to take on this essential role. Of all the benefits of having an estate plan, perhaps the greatest is the reassurance of knowing that the actors you have chosen are prepared to step into their roles when the need arises. With that in mind, when is the best time to have your estate-planning documents drawn up? As Shakespeare said in the Merry Wives of Windsor, “Better three hours too soon than a minute too late.” Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.

September 3, 2024

Estates and Trusts

Corporate Transparency Act Reporting for Covered Entities Owned by Trusts

We are now six months into the new compliance regime instituted by the Corporate Transparency Act (CTA) and practitioners should be aware of the reporting obligations to assist clients with required disclosures. This article limits its focus to trusts. Specifically, estate planners should be able to advise their clients as to which parties to a trust need to report under the CTA when a trust owns business interests. Reporting Requirements Effective January 1, 2024, the CTA requires that “reporting companies”[1] disclose to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) certain information about the company including, but not limited to, its beneficial owners. Trusts themselves generally are not considered reporting companies because the CTA only applies to entities created by filing an organizational document with a state authority such as a secretary of state; however, when a trust owns interests in a reporting company, all parties associated with the trust may be considered beneficial owners of the reporting company. The CTA defines a beneficial owner as any individual who either: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of a reporting company’s ownership interests.[2] Individuals can substantially control or own a reporting company through trust arrangements. Substantial control is broadly defined[3], and there is no limit to the number of individuals associated with a trust who may need to be reported for exercising substantial control, and thus considered a “beneficial owner.” Given the far-reaching meaning of substantial control, any number of individuals that may constitute a beneficial owner with respect to a trust, including the trustee, beneficiary, grantor, or other individuals such as trust protectors, distribution trustees or advisors, investment trustees or advisors, members of the trust protector committee, holders of a power of appointment, or other power holders, whether directly or indirectly through contracts, arrangements, understandings, relationships, or otherwise. If a trust owns or controls at least 25 percent of a reporting company’s ownership interests or exercises substantial control over a reporting company, then the parties to the trust that meet the following conditions are considered beneficial owners and must provide beneficial ownership information to FinCEN: Any party to the trust who: Has authority to vote 25 percent or more of the interests of the reporting company. Has authority to dispose of trust assets. Has authority to remove and replace trustees or direct investments. Is the sole permissible recipient of trust income and principal. Has the right to demand a distribution. Has the right to withdraw substantially all of the trust assets. Has the right to otherwise control the trust’s activities. Has the right to revoke the trust or withdraw trust assets. Has the right to swap assets with the trust and reacquire assets from the trust. Once it is determined who is a beneficial owner, such parties must furnish to the reporting company their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification along with a copy of the identification document. Any time this information changes, the reporting must be updated. Corporate Trustees If the beneficial owner is a legal entity such as a corporate trustee, the reporting company should determine whether any of the corporate trustee’s individual beneficial owners indirectly own or control at least 25 percent of the ownership interests of the reporting company through their ownership interests in the corporate trustee. The following examples are provided by FinCEN: If an individual owns 60 percent of the corporate trustee of a trust, and that trust holds 50 percent of a reporting company’s ownership interests, then the individual owns or controls 30 percent (60 percent × 50 percent = 30 percent) of the reporting company’s ownership interests and is, therefore, a beneficial owner of the reporting company. If the same trust only holds 30 percent of the reporting company’s ownership interests, the same individual corporate trustee owner only owns or controls 18 percent (60 percent × 30 percent = 18 percent) of the reporting company, and thus is not a beneficial owner of the reporting company by virtue of ownership or control of ownership interests. The reporting company may, but is not required to, report the name of the corporate trustee in lieu of information about an individual beneficial owner only if all of the following three conditions are met: The corporate trustee is an entity that is exempt from the reporting requirements; The individual beneficial owner owns or controls at least 25 percent of ownership interests in the reporting company only by virtue of ownership interests in the corporate trustee; and The individual beneficial owner does not exercise substantial control over the reporting company. It may also be necessary to consider whether any owners of, or individuals employed or engaged by, the corporate trustee exercise substantial control over a reporting company. The factors for determining substantial control by an individual connected with a corporate trustee are the same as for any beneficial owner. Exemptions from the Definition of Beneficial Owner When any of the following individuals qualifies for an exception, the reporting company does not have to report that individual in its beneficial ownership information report to FinCEN. Minors (Parent or legal guardian of the minor must report instead) Nominees, intermediaries, custodians, or agents Remainder beneficiaries (Once the individual inherits the interest, this exception no longer applies, and the individual may qualify as a beneficial owner) Creditors Penalties for Noncompliance While attorneys and beneficial owners are not directly responsible for filing reports with FinCEN—the onus falls on the reporting company itself—attorneys should be prepared to advise their clients whether a trust falls within the purview of the CTA and which parties associated with a trust must provide beneficial ownership information. Penalties for failing to comply with the CTA may be steep. Parties to a trust who are considered beneficial owners must provide the reporting company with complete and accurate beneficial ownership information. If an individual willfully fails to do so, an enforcement action may be brought against such party because someone who willfully causes a reporting company’s failure to submit complete or updated beneficial ownership information to FinCEN is in violation of the CTA. Violations can result in fines of $500 per day, up to $10,000 (both adjusted for inflation), and imprisonment for up to two years. Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days. Conclusion The beneficial owner information reporting analysis is complex and must be done on a case-by-case basis. A practitioner must review the extensive CTA information published on FinCEN’s website. There is no doubt that clients with trusts and trust-owned businesses will have questions about CTA compliance. Reprinted with permission from the Summer 2024 edition of The Pennsylvania Bar Association's Real Property, Probate & Trust Law Section newsletter. All rights reserved. Further duplication without permission is prohibited. [1] Reporting companies—defined as any company with twenty or fewer employees formed by filing with the Secretary of State or equivalent official—created or registered prior to January 1, 2024, have until January 1, 2025 to file an initial report; reporting companies created or registered after January 1, 2024 and before January 1, 2025, will have ninety days after creation or registration to file a report. Entities created on or after January 1, 2025 will have 30 days to submit the reports to FinCEN. The CTA exempts around two dozen categories of entities, including companies that are publicly-traded;  have more than twenty full-time US employees; filed a previous year’s tax return showing more than $5 million in gross receipts or sales; have an operating presence at a physical US office location; operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or are subsidiaries of exempt organizations. The exemptions, which generally include larger companies already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies. [2] There are other nuances to this rule if no single owner owns more than 25%. [3] An individual or trust exercises substantial control over a reporting company if the individual or trust meets any of four general criteria: (1) the individual is a senior officer; (2) the individual or trust has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual or trust is an important decision-maker; or (4) the individual or trust has any other form of substantial control over the reporting company.

August 12, 2024

Estates and Trusts

Estate Planning for Young Professional Athletes: A Comprehensive Guide

The Barclay’s Center in Brooklyn recently buzzed with the first round of the NBA draft — a gathering of young, exceptionally talented players hoping to be drafted to a professional team, the pinnacle and the reward for years of hard work and dedication. As young athletes, their focus rightly revolves around training, competition, and achieving a peak performance. However, it's also important for them to consider their financial future, particularly given the short average duration of an athletic career —only 3.5 to 5.6 years, according to The Bleacher Report. As a result, it is imperative that young athletes start off on the right foot immediately to protect their hard-earned assets, their potentially brief career, and their loved ones. While so many assume that the topic of estate planning is for an older demographic, beginning early can provide peace of mind and secure the athlete’s hard-earned wealth for the future. Why Should Young Athletes Consider an Estate Plan? Financial Security: While athletes can earn significant income early in their careers, the average professional athlete only earns between $362,000 - $680,000 per season, according to the Motley Fool. Proper estate planning is key to ensuring that the young athlete’s assets, whether substantial or not, are managed and protected, providing a stable and secure financial future beyond their career. Uncertainty of Career Length: The length of a professional athlete’s career is highly unpredictable. Injuries, even minor ones, can abruptly end a career or lead to being sidelined, benched, traded, or marginalized. Additionally, the physical demands of professional athlete’s training schedules and physical demands can diminish athletic abilities over time. An estate plan serves as a safety net in case of unexpected events. Family Protection: Many athletes come from families that have collectively pooled their resources to provide the support that propelled the young athlete to the professional arena. When athletes succeed, they often want to protect those who have supported them. The athlete is often relied upon to ensure financial security for themselves and their larger family of origin. An estate plan ensures that the athlete and their family are protected, especially if their career ends earlier than expected. The “Plays” of an Athlete’s Estate Plan Last Will and Testament: A Will is a legal document that outlines how assets will be distributed after death. It names beneficiaries, designates guardians for minor children, and appoints an executor to carry out the athlete’s wishes. Trusts: Often referred to as a Will “substitute,” Trusts offer more privacy, control, and flexibility over the athlete’s asset distribution than a Will. Trusts also help minimize estate taxes, protect assets from creditors and other predatory actors, and provide for loved ones in a structured manner. Power of Attorney: This document grants the athlete’s trusted advisor the authority to make financial decisions on the athlete’s behalf, especially during busy times like pre-season training. If the athlete becomes incapacitated, even temporarily, the Power of Attorney allows another trusted person to make financial decisions on their behalf. It's crucial for the athlete to choose someone who understands their unique financial situation and has their best interests at heart. Healthcare Proxy: Similar to a Power of Attorney, a Healthcare Proxy appoints a person to make medical decisions on behalf of the athlete if the athlete is unable to do so themselves. This ensures that the athlete’s healthcare wishes are respected when they are unable to make decisions themselves. Beneficiary Designations: Often overlooked, beneficiary designations on accounts direct who inherits the asset upon the athlete’s death. It is imperative that the athlete review and update beneficiary designations on life insurance policies, retirement accounts from their respective league, and other financial instruments regularly to ensure they align with the athlete’s Will, Trust, and overall estate plan. The Young Athlete’s Next Move: Assess Your Assets: The young athlete should start simple: list all their assets, including property, investments, intellectual property, and personal items. Set Goals: Determine the goals for the estate plan. What is most important? There is no one right answer: every athlete has different priorities, whether it be financial security for the family, a charitable cause, or minimizing taxes. Regardless of the goal, it can be achieved with the right plan. Consult Professionals: Avoid cautionary tales of athletes who engaged unqualified “professionals” (here’s looking at you, Tim Duncan.) Working with an experienced estate planning attorney, a competent financial advisor, and a skilled accountant will ensure a comprehensive estate plan structured and tailored to the young athlete’s needs. Regular Reviews: The life circumstances of young athletes change frequently. Being traded to a team in a new state with different estate planning rules, experiencing drastic income fluctuations, and evolving interpersonal relationships mean the estate plan must pivot to remain relevant. Regular reviews ensure the plan continues to reflect current circumstances. Estate planning can seem daunting, especially for young athletes just starting their careers. However, taking the time to plan now can provide significant benefits in the future. By securing their financial future, protecting their assets, and ensuring their loved ones are cared for, young athletes can focus on what they do best on the field, the court, or the ice.

July 12, 2024