Probate

Trusts: The Planning Tool You May Not Know Alot About But…Really Should.

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Trusts are an important piece of your estate planning arsenal; the reasons why can differ depending on the type of Trust. There are many types but I will not be discussing them all or going into great detail.

My Series has an Elder and Special Needs Law focus, so the later discussion of specialized Trusts (in the coming weeks) will go into more detail. For example, when discussing Medicaid Planning, I will delve into the Medicaid Asset Protection Trust. When discussing Special Needs Planning, I will explain the types of Supplemental Needs (a/k/a Special Needs) Trusts.

As is my intent throughout the Series, I will be laying a foundation that can carry you forward.

Generally, the Grantor’s objectives can also determine the type of Trust.  The Grantor is the person who creates the Trust for either their own benefit or for others.  Some may refer to a Grantor as a “Trustor.”

Another concept to understand is that a Trust is a fiduciary agreement, where the Grantor names a person or persons, called a Trustee or Co-Trustees, to hold/manage assets for the beneficiaries.

A Trust distinguishes itself from a Last Will and Testament, in that the former is not subject to Probate. In the second article from the Series, I defined Probate as the judicial proceeding wherein the Court names an Executor who then marshals and distributes the decedent’s assets to the beneficiaries.

When an asset is non-probate, it means that it passes directly to the named beneficiary. For example, a life insurance policy is a non-probate asset.

When discussing Trusts, whatever asset(s) is/are named within the Trust (if the Trust was drafted or written correctly) will “pass” directly to the named beneficiary without a Court proceeding. But as an example, if it is residential property the beneficiary needs to effectuate a deed change for ownership to change legally.

As I mentioned at the beginning of the article, there are many types of Trusts so they all start with these two:

  1. Inter Vivos (Living) Trust and
  2. Testamentary Trust

All Trusts will first fall under one of the above categories.

First, the Testamentary Trust

A Testamentary Trust is one that is established through the Grantor’s Last Will and Testament or interestingly enough …an Inter Vivos Trust.

A Testamentary Trust can be revoked at any time during the Grantor’s lifetime, if the Last Will and Testament where it is created is modified or revoked.  Once the Testator of the Will dies, the Testamentary Trust becomes Irrevocable (i.e. permanent).

Likewise, if the Testamentary Trust provision of the Inter Vivos Trust is modified/removed, or if the Living Trust itself is terminated, so is the Testamentary Trust.

And whatever objectives an Inter Vivos Trust aims to accomplish, a Testamentary Trust can (pretty much) do the same.

The Inter Vivos Trust

An Inter Vivos or Living Trust is one that is established during the Grantor’s lifetime. There are many types- again-depending on the objective(s).

Briefly, an Inter Vivos trust can be created (and this is not an exhaustive list):

  • To shield assets from potential future creditor
  • To hold life insurance policy (ies)
  • To hold money
  • To hold property -residential or commercial
  • To hold assets for minors
  • To provide for different beneficiaries at different times (i.e. a surviving spouse and then to Grantor’s children after spouse death).
  • For the benefit of a charity
  • As a Credit Shelter or Family Trust (estate tax benefits)
  • To provide for a non U.S. Citizen spouse
  • To produce a lifetime financial benefit to the Grantor and/or the beneficiaries
  • To produce a tax benefit for the grantor and/or the beneficiaries

In the Inter Vivos Trust category, there are two further sub categories:

1.     Revocable Trust and

2.     Irrevocable Trust

A Revocable Trust is one where the Grantor retains control; it can also go by the name Grantor Trust. The Grantor can:

– Amend or modify the terms (i.e. remove, buy or sell assets from the Trust) and/or

– Replace/change the beneficiaries of the Trust and/or

– Name themselves a beneficiary and/or

– Terminate the Trust altogether.

The Grantor can act as the Trustee.

The assets in the Trust remain in the Grantor’s estate.

The assets in the Trust are taxed as part of the Grantor’s estate (personal income tax, Form 1040); the Trust is not a separate entity.

A Revocable Trust becomes Irrevocable at death of the Grantor.

NOTE: Beneficiaries do not pay tax on distributions since Grantor has already done so.

An IrrevocableTrust is one where

– The Grantor cannot amend or modify the terms and/or;

– The Grantor cannot terminate the Trust and/or beneficiaries;

– Once created (and funded), the Grantor has no control over it;

– The Grantor no longer has ownership rights over the assets within the Trust; and

– The Grantor cannot act as Trustee.

The Grantor could only have the right to the assets, if they named themselves a beneficiary. The Trust would need certain provisions/distribution language included to accomplish this. If done incorrectly, it could prejudice the Trust’s objectives.

The assets in an Irrevocable Trust move out of the Grantor’s estate.

The Irrevocable Trust is taxed as a separate entity (Form 1041).

The Irrevocable Trust is an attractive option for Grantor’s looking to protect assets from potential future creditors or to limit or eliminate estate taxes.

NOTE: Beneficiaries do have to pay income taxes on the distributions.

So, there you have it, a bare bones primer on Trusts. If you remember the above, all the puzzle pieces will (hopefully) fall into place as we continue along in my Series.

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If you’d like to learn more about me and my law practice you can go here or, si hablas español, here.

Diving In: The Last Will and Testament

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Picture it: My office within the last couple of years

I cannot remember exactly when, but I had a consult where an adult son accompanied his mother and with full confidence and pride, told me how he had 1) drafted his mother’s Last Will and Testament, 2) signed it as a witness and 3) was also the Executor. He then showed it to me.

I sat there in complete silence.

I was also appalled.

Do you know why that situation was so problematic?

I am about to tell you by explaining what makes a “Will.” Just a caveat, there are a lot of layers when discussing “Wills.”

Lawyers have written treatises on the subject. Treatises are REALLY big books that take deep dives into different corners of a legal subject and are a reference guide for attorneys.

You will find no treatise here. Remember, this is an elemental series- and a foundation. YOU build on that.

You think you know…but a lot of you don’t

The most well-known estate planning document, by far, is the Last Will and Testament, more commonly known as “a Will.” I think many people have heard sad and downright horrible stories within and outside of their families, about the chaos that can ensue in this document’s absence.

The lack of a Will (and I will be very frank, even its existence) can bring out negative traits in an otherwise “good person,” and can create a monster from a person who already had ill intentions or frayed family ties. Either way, having a Will is far better than not having one.

Therefore, it is the document a potential client will come to me specifically requesting— and nothing else.

No estate planning or elder law attorney worth their law license would ever just draft a will for a person who has never done any type of planning. In my opinion, to do that is malpractice.

I will put this in a different context: If a person is in an accident and both of their arms and legs, all their limbs, were fractured, a physician would cast all four limbs- not just one. All limbs need protection so that bones can fuse back together properly, and the person can resume full mobility.

It is the same with attorneys. It is our responsibility to tell clients what they need, not just go along with that they think they need. More often, they do not know the importance of a document and the long-term consequences of having it versus not.

The Series will go into more detail about this, but I just wanted that point to be clear from the outset.

“Who’s Who” in a Will

Even with most people requesting a Will, many still do not understand the document and its actual function.

We will return to my non-hypothetical from the beginning as a clear example.

·      A Last Will and Testament is a testamentary document. Testamentary means it is a document that creates or transfers an interest or a right to an asset or property. NO ONE, other than the testator and an attorney, should look at this document before the Testator’s death.

  • It should be reviewed and/or revised as necessary. It cannot be utilized in any way prior to the Testator’s death. It becomes important at death.

·      The ONE person who has authority to execute a “Will” is the Testator or Testate(“Testatrix” if you want to be proper and reference a female).

·      When the Testator dies, they become the Decedent.

·      What the Decedent leaves behind in, or outside of, the Will is referred to as an Estate.

At some point after the Decedent’s death, the Will must be submitted to the local Supreme Court (in New York City) in the county where the person died for Probate.

In simple terms, and for this article, it is a judicial proceeding or process that gives a person called an Executor (more on the latter below) the power to collect all the Estate’s assets and distribute them according to the Decedent’s wishes.

The Executor was nominated and named in the Decedent’s Will.

·      Who drafts, or writes, a Will? An Attorney. More specifically, an attorney with experience. Even more explicitly, an Estate Planning and/or Elder Law Attorney who has built a practice around this area of law.

  • This is not snobbery. If a cardiologist cannot diagnose neurological conditions, then an Intellectual Property lawyer whose practice focuses almost exclusively in that area, does not have the experience or knowledge base to handle these types of matters.
  • Your son or daughter, even if they are an attorney, is not an acceptable draftsman. If they are your niece or nephew, then a BIG maybe. In my example, he was not an attorney.
  •  A Staples do it yourself “Will Kit” is not acceptable. Sorry Staples, I like buying my office supplies from you, but I would never go to you for my estate planning needs.
  • You cannot write your own Will, and your high education level or superb writing ability is irrelevant. Will drafting is more technical than creative.

·      A Testator leaves specific assets to the person or persons they name, and this class of people are generally known as Beneficiaries, or Designated Beneficiaries. Some people will use the word “heirs.”

  • A beneficiary can be a spouse, child or family member, a friend, an organization or institution.
  • In my example the son who was the Will draftsman was a beneficiary of his mother’s estate.
  • A beneficiary cannot draft a Will from which they expect to receive an inheritance. So, if your attorney nephew is a beneficiary he cannot draft it. If your favorite attorney is a beneficiary, they cannot draft it either.

NOTE: A Residuary Beneficiary is a beneficiary who is not left a specific bequest (gift/asset) in the Will. A very simple example of a specific bequest followed by a Residuary Clause is:

I leave (or give/devise/bequeath- they all mean the same thing) my primary residence, located at 123 Mockingbird Lane, New York, NY 10023 to my wife, Jane Smith.

I leave the rest, remainder and residue of my estate, both real and personal, of whatever nature and wherever situated, real or personal property, tangible or intangible, to my only daughter Joanie Smith.”

All those words are meant to cover our butts, I mean, bases. Our aim is to be thorough after all.  

·      Every Last Will and Testament execution (signing) must be witnessed. The Witnesses,two to three of them, should be non-family members or, if family members, those who are not beneficiaries listed in the Will.

  • The purpose of the witnesses is to maintain the integrity of the process. In other words, 1) attest to the testator’s sound mind- their orientation to self, time and place and 2) ensure others that the testator was not unduly influenced, under duress or pressure to sign the document when executed.
  • The witnesses will sign a Self-Proving Affidavit attesting to what I just wrote above.

·      Who carries out the Testator’s wishes? The Executor.

  • The Executor can also be a beneficiary of the Will, but it is not necessary.
  • They can be a family member or a friend.
  • They can be a trusted professional, like an attorney, a financial advisor or accountant.
  • Most importantly, they need to trustworthy people.  Executors have a very important job and what is known as a “fiduciary responsibility” or duty to the beneficiaries. They must be accountable to the beneficiaries for all the assets in the estate, answer all questions, and ensure all assets are given to the named beneficiaries, in the manner intended and that the Estate closes properly.
  • If an Executor does not do their job or if they steal from the Estate, you can have them removed.

There should ALWAYS be an alternate Executor named in the Will, in the event of the Executor’s death, illness, misconduct or deciding to step down from or discontinue the role.

What can go “in” a Will?

Almost everything.

Property: “real property” like a primary residence and other residential or commercial properties you may own.

Property: “personal property” like the objects within your home, your favorite watch, your grandmother’s china set, or your mother’s engagement ring or sentimental objects with great personal value but no great monetary one.

This category includes vehicles for the road, a vessel for the water or, why can’t it—an aircraft for flight in the skies.

Intellectual Property: music compositions or master recordings, original artwork, designs, manuscripts, your written work product or ideas etc. Anything you physically create or anything you create or own in the digital space or “cloud.” And this even includes access to your online accounts.

NOTE: There are more sophisticated techniques to protect property, but remember this Series is elemental. A Will is better than NO Will for almost any property. It’s protection. It is stated wishes, not guesswork.

I will briefly mention property that is non-probate and that can pass outside of a Court proceeding and, for some, AS LONG AS A (INSTITUTIONAL) BENEFICIARY FORM OR DESIGNATION has been completed:

·      Retirement accounts

·      Pension (plan)

·      Life Insurance

·      Property held by two people, a “joint tenancy with right of survivorship” or as “tenants by the entirety”

·      Property held in the name of a revocable or irrevocable Trust

·      Joint Savings Account (Checking accounts are not included here)

·      A bank account “held in Trust for” another person

This is your “primer” on the Last Will and Testament.

I bet you are wondering what happened to the adult son and his mother I mentioned at the beginning of this article? I told him that his mother’s bequests to him in the Last Will and Testament would not survive for the mere fact that he “drafted” a Will where he is an Executor and Beneficiary. If there were other irregularities in the Will drafting (which there were) and in the signing ceremony (which there likely were), the Will could be declared a nullity.

I never heard back from him.

You can’t help everyone, unfortunately.

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If you’d like to learn more about me and my law practice you can go here or, si hablas español, here.

 

Why I am Doing This

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A number of months ago, LinkedIn invited me to their Series “pilot,” and I began to publish my Series, “Elder and Special Needs Law in a ‘New York Minute'”

I am reproducing the Series here every week.

Super thankful to have been invited to this Series pilot. I must write that as a first sentence.

Now, I will tell you why I titled it “Elder and Special Needs Law in a New York Minute.”

I was born, raised, live and practice law in New York City. It is a fast-paced city, where people oftentimes need an answer—succinctly and quickly.

Elder and Special Needs Law is not a sexy topic, I can admit that.  However, I will strenuously argue that it is important, even vital, to every single person including…you.  If you have not been touched by these areas of law (yet), you will be and already know a person or persons who have confronted legal issues associated with aging, a special needs child or both.

Unfortunately, and all too often, people’s decision to plan is reactive, as opposed to proactive. What I mean by this is, 1) they never thought about, 2) did not want to think about, 3) did not think it was their time to think about it yet (i.e. too young), or 4) thought it was too costly to do…until they could no longer avoid it.  Fear is one contributing factor to this “procrastination,” but cultural taboos around aging, illness, money and death are others.

When they finally decide to plan, some are surprised, disappointed or frustrated to realize that waiting left them with less than desirable options. In these areas of law, time is not necessarily your friend.

The purpose of the series will be to break down these two areas of law into its components, starting with the basics of estate planning and branching out into Elder Law and then Special Needs. When people ask me what Elder Law is, I always reply that it is a “sibling” to Trusts and Estates. Like real siblings, they share important characteristics but are clearly distinct from one another. I characterize Special Needs Law as the youngest, the “baby.”

I am here to teach. I am here to impart understanding. I am here to demystify these areas of law. I do not want people to be afraid.  I promise not to overload you with information. On the contrary, I hope to assist you in creating a foundation, a foundation that is important now, no matter your age, and well into your future.  

If you’d like to learn more about me and my law practice you can go here or, si hablas español, here.

The Tragic Case of Peter Knoll: What Legal Steps Could Have Prevented His Death?

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This morning, I was reading the newspaper– on my smartphone– when a headline grabbed my attention: “Battle Erupts Over Estate of Wealthy Recluse Who Froze to Death Inside his Upper East Side Mansion (you can read the article here http://www.nydailynews.com/new-york/ny-metro-battle-estate-upper-east-side-man-20180722-story.html).

Reading this article led me to another one published on April 23, 2018, a number of months after his death that winter (read here: http://www.nydailynews.com/new-york/manhattan/hypothermia-kills-75-year-old-man-upper-east-side-townhouse-article-1.3949019).

Peter Knoll, a 75 year old Manhattanite and son of a furniture magnate,  froze to death in his apartment.  Con Edison had shut off his utilities in 2014. However and very unfortunately,  they failed to notify the proper adult protective and other city authorities so Mr. Knoll suffered in silence until his death. His close circle of family and friends evidently knew he had no heat in his home, but…nothing was ever said by anyone (as far as we know).

Publicly, there is not a lot known about his life in those last years. There is a brief mention of physical ailments, but the public record is largely silent on whether or not he suffered from any condition that cognitively or psychologically impaired him. My suspicion is that Mr. Knoll was not in his right frame of mind.  And I have some thoughts on that, but before I get to that…

In my professional experience, older people who live alone are often isolated-particularly if they live in a private residence–unless they have involved family or friends to supervise or otherwise “check in” on them.  This is why many older people and their loved ones, opt to have them reside in 1) senior living communities or 2) an assisted living residence. A third option, if finances permit, is to hire professional live in help. If problems arise, they will become known sooner.

It is shocking and tragic that a man of Mr. Knoll’s immense financial  resources would have been left to suffer alone. He had enough assets to not only live comfortably the rest of his days but to have others attend to his every need- without him ever having to leave his home, or ever becoming impoverished as a result.

The solution to this inevitable tragedy? Properly executed “Advance Directives,” individually known as a Health Proxy (for medical decisions) and a Power of Attorney (for everything non-medical). These documents are in effect during a period of incapacity. If these documents were never executed,  then the option would be an Article 81 Proceeding a.k.a. Adult Guardianship

I have been involved in Article 81 proceedings for a number of years and have worn every hat imaginable: 1. Petitioner’s Counsel, 2) Court Evaluator (the Judges’ “eyes and ears,”), 3) Counsel for the Alleged Incapacitated Person (AIP) and 4) Permanent Guardian.  Briefly, this proceeding is filed in Supreme Court (a trial court)  to request from the “Court” (the Judge) that a Guardian be appointed to care for the personal needs and property management of an “Alleged Incapacitated Person.” Yes, there is a hearing. Sometimes they are uncontested, other times they are quite contested. The AIP can consent, but sometimes they do not and then there are those who cannot.

In the end, the Judge determines if the person is incapacitated and how this incapacity could further harm them without the appointment of a Guardian.

Based on the brewing estate “battle” and the allegations by one of Mr. Knoll’s adult sons that others took advantage of his father’s “frail physical and mental state,” it seems it was known, at least by some, that Mr. Knoll was not well.

So why did nothing happen? I have absolutely no idea.  And if I were to put forth theories, this blog post would become even longer and I would become even more incensed.

My biggest takeaways from his story:

  1. Even all the money in the world cannot protect you, when people choose to remain silent.
  2. Watch over older people you know, in your family and community.  It really is our responsibility.
  3.  In Spanish there is a saying, “Hoy por ti, mañana por mi” which means “Today for you, tomorrow for me.” Treat others how you would want to be treated. Getting to old age is a privilege and it should happen with dignity.