Prince was a welcomed and permanent musical fixture on the landscape of my adolescence, and I was as shocked as everyone else when he passed away on April 21. In the immediate aftermath of his death, it was reported by Prince’s longtime attorney that Prince likely died without a will. Unfortunately, this initial report has proved true, and the news, to my ears, is almost as shocking, and almost as sad, as Prince's death itself. It is estimated that Prince was worth about $300 million at the time of his death, and this amount is only likely to grow as sales of his music, etc., soar in the coming months and years. He also had many business interests, wide-ranging intellectual property interests, and other complexities that will need to be addressed.
 
Adding to this is the fact that, to my understanding, Prince had no legal spouse and no children at the time he died (although I've read reports, unsubstantiated at the time I write this, that Prince has a "love child" from many years ago, and if this proves true, it will probably throw the entire estate into even more disarray). Assuming there is no spouse or children, this means that Prince’s estate will go, in its entirety, to Prince’s closest living blood relations, which appear to be one full-blood sister and a number of half-blood siblings (under Minnesota law, as well as New York law and the laws of most if not all other states, half siblings are treated the same for inheritance purposes as full-blood siblings).

Who knows who Prince would have wanted to administer or benefit from his estate, or how he would have wanted it to happen, but since he died without a will or other estate planning instrument like a revocable living trust, the state of Minnesota essentially wrote Prince's will for him in the form of its intestacy laws, which rigidly dictate who, and in what order, surviving family or others can administer a person's estate and benefit from it. All states have their own intestacy laws.

What struck me most about the first article I read about Prince's estate was a comment by Prince’s long-time attorney that Prince thought he would live forever, and could not face the fact of his own mortality, which is likely why he never set up a will or trust. This really hit home for me, because while I understand that basic--and totally understandable--human nature prevents many of us from facing the inevitable, I always try to impress upon people that setting up a will is more about protecting your assets and your loved ones than it is about “planning your own death.” I think that’s the greatest takeaway for me (and hopefully for you) from this sad tale. Perhaps no one and no argument could have persuaded Prince to set up estate planning documents, but had someone tried, and succeeded, in convincing him that even “basic” planning could protect his assets and his loved ones far better doing nothing could, I’m sure those now left behind to tend to the mess would have been spared a great deal of expense, time, and heartache.

With a new college school year soon to begin, I thought this topic might be, well, topical.

Now, I'll be the first person to concede that not a lot of college-aged young people need a will. That said, the other two traditional "core" estate planning documents are potentially just as important to people in their late teens as they are to people in their late eighties. Those documents are a health care proxy/living will and a durable power of attorney. 

Once a child turns 18, a whole assortment of privacy laws and rights kick in (including HIPAA), making it potentially difficult if not impossible for even a parent to get access to medical records/information at times when having such information might be vitally important to the treatment of an adult child in an emergency medical situation.

Many parents of college-bound children assume that since they're paying the tuition, or that the child is living under their roof, that they have the right to make legal/medical decisions for that child, but the reality is that at 18 that child became a legal adult with the legal right to privacy and to govern their own lives.

There are many examples of parents wishing to speak to doctors about the treatment of their adult child after a car accident or other medical situation that rendered the child unable to give consent for the parents to access their medical records or speak with the doctor about the child's treatment. Not until such children regain consciousness and can give consent is a medical professional allowed to involve the parents in the child's care. For children who do not regain consciousness quickly, parents need to go to court to seek to become a temporary legal guardian, which costs thousands in legal fees and leads to delay that could be tragic to the child's prognosis.

This is not to scare parents, but to bring an important but rarely considered issue to light. 

Having a health care proxy/living will set up--perhaps as part of the process of preparing to leave for college--allows the child to name his or her parents as health care agents allowed to have access to medical records and to make medical decisions on the child's behalf if the child is ever unable to. The document--at least the document I provide my clients--also expresses end of life wishes such as life support, etc. Once signed and executed, this document should be shared with the child's primary care physician. It can also be uploaded via an affordable service called Docubank (www.docubank.com), which will store the health care document and other vital health information about the child in a cloud service that can be accessed from anywhere with an internet connection via a PIN number on a wallet card provided to the child by Docubank--a wallet card that also includes other types of information needed quickly in a medical emergency, such as known allergies. I offer my clients a Docubank enrollment form, which I can use to enroll them in the service if they wish for me to. The cost is less than $30 per year.

A durable power of attorney for a college-aged child might be less important than the health care document, but executing a durable power of attorney in favor of the parents allows the parents to pay a child's bills, speak to the child's landlord, and numerous other financial and personal transactions if the child is either incapacitated or simply away at college or traveling abroad or any other reason. Otherwise, the parent must seek court permission to do so, at significant time and expense.

As a side benefit, going through this process with a college-aged child may also open the child's eyes and pave the way for thinking responsibly about undertaking other important legal tasks down the road in life, such as setting up a will and other documents that can protect the now-older-and-wiser child's assets, relationships, and loved ones.

If you would like to discuss any of this with me further, you can contact me in a variety of ways by clicking here.

Polls show that 86% of Baby Boomers and 74% of Americans over 72 years of age said that family stories and keeping their family history alive is the most important part of their legacy. Additionally, 64% of Boomers (compared to 58% of elders) said that family mementos and heirlooms are a key inheritance. Only 9% of Boomers said they're eager to inherit money. 

This is all very heartening, but the problem is that lawsuits and other family conflicts in the wake of a family member's death are almost always about tangible personal property--the deceased person's "stuff". Money is rarely the source of deep conflicts. Money can be divided up. That pipe that grandpa always smoked on the front porch in the summer? Not as much.

It's the emotions and sentimental value that cause the serious intra-family conflicts.

Here are some things that can be done to avoid such conflicts:

1) Talk with your family members about specific keepsakes they may want to have, and reflect those wishes specifically in your will. You might even gift certain items to certain people while you are living, to avoid problems after you're gone. You might also want to discuss the final disposition of something like a family summer home. Many a lawsuit has involved siblings arguing over whether to sell such a property or keep it in the family. Parents might consider discussing the issue with their children individually and as a group, and then telling all the children, in one place at the same time, what the parents are going to do about the property and why.

2) Create a memorandum that disposes of your tangible personal property outside of your will. Through a legal doctrine called "incorporation by reference", if a will refers to a list that the testator may leave behind disposing of certain items to certain people, then that list will be honored, even though the specific gifts aren't made in a will. It's important to note that such a memorandum is not legally binding in New York, although it is in New Jersey. However, hopefully you will have picked someone as executor who you trust to carry out all of your wishes. People may be unhappy with your choices, but they'll be more likely to accept them. Such lists or memorandums should be specific. For example, don't say you leave your diamond necklace to your niece, Jody, if you have three diamond necklaces. Take steps to make it easy to identify what objects you are referring to. Also, keep this memorandum or list with your will and other important papers so your executor can find it.

3) If you have a favorite grandchild or nephew, plan to provide them with a little (or a lot) extra during your lifetime, but treat the members of the same level of family (i.e., all grandchildren) equally in your will. 

4) In some cases, especially if family conflict is expected, or if there are, for example, children from a first marriage and children from a second marriage who may not see eye-to-eye on estate-related matters, you might want to consider hiring a professional executor. Talk to your bank or investment/trust institutions about what services they offer in this area.

Thanks for reading! If you would like to discuss any of this further, please feel free to contact me anytime.

As of April 1, 2014, New York has doubled its estate tax exemption amount from $1 million to just over $2 million. Better yet, the exemption amount will continue to increase over the next several years until it becomes linked to whatever the federal estate tax exemption amount is (currently about $5.25 million). This now puts the estates of most New Yorkers beyond the reach of any estate tax. (Perhaps one day New Jersey will catch up. Currently, any estate valued over $675,000 is subject to estate tax in New Jersey.)

However, there is a HUGE caveat to these changes: If the estate is valued at more than 5% over the exemption amount (currently, 5% over approximately $2 million), then the ENTIRE estate becomes subject to New York's approximately 16% estate tax rate. Under the old law (and under federal law) only the portion of the estate exceeding the exemption amount was taxed (at the same 16% rate).

Imagine if you die in New York with an estate that is just one dollar over 5% more than the exemption amount. Then your estate pays 16% of the whole estate rather than zero in estate taxes.

Additionally, the new changes don't include a portability provision like federal estate tax law does. Portability essentially means that if one spouse of a legally married couple dies and doesn't use his full exemption, the surviving spouse can use it when he or she dies, effectively doubling the exemption amount a married couple can enjoy. But again, this is only for federal purposes, not New York state purposes. The good news is that an experienced estate planning attorney can include trust provisions in the wills of a married couple that effectively achieve the same thing, even for New York estate tax purposes.

So, despite this being a great thing for the vast majority of New Yorkers who are not "super rich"--even if some of those people have quite sizable estates--for a certain part of the population perils still exist. 

"In this world nothing can be said to be certain, except death and taxes." —Benjamin Franklin
 
Death and taxes may indeed be inevitable, but paying a so-called “death tax” is not. The way certain politicians rant, one might reasonably (but falsely) believe that upon a person’s death half of their estate will go to the federal government. The reality is that very few people are affected by the federal estate tax (aka “death tax”). For example (very generally speaking), in the case of a married couple, upon the death of one spouse the entire estate passes tax-free to the surviving spouse. Upon the death of the second spouse, a federal estate tax of up to 39% is applied to all assets above $5.25 million (as of 2013) not otherwise shielded from the tax before the remaining assets pass to the beneficiaries. If you (like most of us) leave behind an estate of less than $5.25 million ($10.5 million for a married couple), the federal estate tax doesn't apply at all. 

However, the picture is quite different when it comes to estate taxes collected by state governments. For example, New Jersey’s estate tax applies to estates worth more than $675,000. In New York, the tax applies to estates worth more than $1 million. Upon first glance these numbers might also seem high, but it is important to note that virtually all assets in an estate are counted to arrive at its value (known as the “gross” estate). For example, all real estate is counted. Life insurance policies are counted. Retirement accounts are counted. Even most gifts made within 3 years of death are usually counted. 

In the New York tri-state area, it is not uncommon for a home to be worth well upwards of $500,000. Add to that a pair of life insurance policies and a retirement account and one can see how easy it is to exceed the New Jersey and New York exemption amounts.

It is also important to note that unmarried couples —do not enjoy a tax-free transfer upon the death of one of the partners. So, if you not a legally married couple it is especially important to have an estate planning attorney that understands the issues and can develop an estate plan for you that mirrors as closely as possible the many rights and benefits afforded to married couples.

Regardless of relationship status, however, an estate tax can apply upon the death of the surviving spouse or domestic partner if the value of the estate exceeds the exemption amount (currently $675,000 in New Jersey and $1 million in New York). Therefore, it is important to have an estate planning attorney review your personal and financial circumstances in order to develop an estate plan that can either eliminate your estate tax exposure or at least reduce it significantly. 

So, what can an estate planning attorney do to help you avoid or reduce these taxes? The good news is that there are many tools in the estate planning arsenal, including irrevocable life insurance trusts, bypass trusts, and the annual gift exclusion, to name a few. 

Irrevocable Life Insurance Trusts

Often, a life insurance policy is the asset that makes an estate subject to estate taxes in the first place. It is not at all uncommon to have a life insurance policy providing a death benefit of several hundred thousand dollars or more—all of which is included in determining your gross estate. An irrevocable life insurance trust (ILIT) is a type of trust that is specifically designed to hold and own life insurance policies so as to remove them from the calculation of an estate’s value. Once a life insurance policy is irrevocably purchased by the trustee of the ILIT (usually a non-spouse trusted family member, accountant, or financial institution) to cover the life of the grantor of the ILIT (you), with the ILIT being the beneficiary of the policy upon your death, you will be deemed to have no ownership or control over the policy. Since you'll no longer own the policy or control its terms, the proceeds can't be taxed in your estate when you die. 

Even if you already have a life insurance policy, ownership can be transferred to an ILIT. However, it is important to note that if you die within three years of the date when the policy was transferred to the ILIT, the life insurance proceeds will be included in your estate for tax purposes. This does not mean that the beneficiary will not receive the money, it merely means that your estate will have to count the proceeds as being part of your gross estate when computing the estate tax.

Since the ILIT is named as the beneficiary of the life insurance policy, after you die the insurance proceeds will be transferred into the ILIT and held in trust for the benefit of your spouse or partner during his or her remaining lifetime, with the balance passing to your children or other beneficiaries. Another benefit of the ILIT is that since the insurance proceeds will be held in trust for the benefit of your spouse or partner instead of being paid to that person outright, the proceeds can't be taxed in their estate, either.

An ILIT can be a very powerful and effective element of a well-designed estate plan, and can provide a great deal of benefit to your beneficiaries. However, this is a highly sophisticated estate planning technique, and there are certain administrative requirements to be followed, and important documents to be maintained. An estate planning attorney will not only be able to help you set up the ILIT, but also help ensure that all requirements and formalities are complied with.

Bypass Trusts

A bypass trust can be helpful to a married couple by taking, upon the death of the first spouse, the applicable exemption amount ($675,000 in New Jersey, and $1 million in New York) and putting it into a trust for the benefit of the surviving spouse during his or her lifetime with the remainder going to the couple’s children—as opposed to leaving that amount to the surviving spouse outright. By using a bypass trust, the first spouse to die directs (i.e., via his or her will) that some of his or her wealth (up to the full exemption amount) be placed into a bypass trust upon their death. At death, that amount is transferred into the bypass trust, with the rest of the deceased spouse’s estate typically going to the surviving spouse outright. When the surviving spouse dies, the children receive the bypass trust assets (as successor beneficiaries to the trust) and the surviving spouse's assets (as beneficiaries under the surviving spouse’s will). Since assets in the bypass trust did not belong to the surviving spouse (they were, instead, held in trust for his or her benefit), they are not included in his or her estate when calculating the value of the estate for estate tax purposes. This may save a substantial amount of estate taxes.

For example: 

Husband and Wife (Henry and Wilma) live in New York. Henry dies with an estate worth $2.5 million. In his will he provides for a bypass trust to be created in the amount of New York’s estate tax exemption amount ($1 million). The beneficiary of the bypass trust is Wilma, and during her lifetime she receives the income from the trust plus as much of the principal that, in the trustee’s discretion, is needed to keep her living in the manner to which she was accustomed. The rest of Henry’s estate ($1.5 million) passes outright and tax-free to Wilma. Upon Wilma’s death, whatever remains in the bypass trust will pass to Henry and Wilma’s children (or whoever else was named as beneficiaries) tax-free. 

Now, assuming Wilma dies with all $2.5 million intact (the $1 million bypass trust plus the $1.5 million received outright under Henry’s will) and no additional assets of her own, the $1 million in the bypass trust passes directly to the children, tax-free. And, because Wilma never had full control over or an unfettered right to the trust’s principal during her lifetime, the trust’s assets are not included when calculating the value of her taxable estate. Next, her own $1 million exemption amount is deducted from the $1.5 million she inherited outright from Henry, leaving (assuming there was no additional estate planning) $500,000 subject to New York’s estate tax. The New York estate tax on $500,000 would be roughly $10,000.

However, had Henry left all $2.5 million to Wilma outright at his death, Wilma’s estate at her death would have been valued at the full $2.5 million, rather than $1.5 million. Her $1 million exemption amount would have been deducted from the $2.5 million, leaving $1.5 million subject to New York’s estate tax. The New York estate tax on $1.5 million would be roughly $64,400.

So, by setting up the bypass trust, Henry and Wilma were able to get the full benefit of their respective $1 million estate tax exemptions, thus getting $2 million to their children tax-free, and saving about $55,000 in estate taxes (while almost certainly spending less than 1/10th of that to set up their combined estate plans).

Annual Gift Exclusion

The annual gift exclusion allows any person to give up to $14,000 per year (as of 2013) to as many people as the donor wishes, tax-free—for both the donor and the recipient. This amount increases to $28,000 per recipient if given by a married couple. For example, you can give up to $14,000 (or $28,000 if giving as a married couple) to one person or a million people, tax-free. If you have twelve grandchildren, each can receive the full $14,000/ $28,000— every year, tax-free to you, tax free to them. If you want to give $14,000 to every resident of New York City, that’s fine, too—every year for as long as you’re alive. Tax-free. Thus, this is a great way to reduce the value of your estate by giving monetary gifts during your lifetime—to be enjoyed by the recipients while you’re still here, instead of only after you’re gone. 

All of the above-mentioned estate planning tools can also be applied to reduce federal estate taxes, should your estate be large enough to be exposed to such taxes. Even if you don’t think your estate will qualify to be taxed under New York or New Jersey’s lower exemption amounts, your financial circumstances can change significantly at any time or over time, and so planning ahead now can save tens or even hundreds of thousands of dollars for your loved ones later. In addition, there are numerous tools other than those outlined here that can reduce your estate tax exposure even further. 

Regardless of which type of estate tax you are trying to avoid or reduce, it is important to get sound advice from a knowledgeable attorney because in most cases the greater the potential benefit, the greater the scrutiny by the IRS and state taxation authorities—and the more technical and stringent the requirements for creating and administering a valid and enforceable trust or other estate planning instrument. Plus, a good estate planning attorney will stay abreast of and keep you informed about changes in the law, including the ever-shifting exemption amounts, so that you can sleep easy knowing that, when the time comes, as much of your hard-earned assets as possible will get to your loved ones, and in the way you intend for them to.

 “What do I do next?”
“How am I going to take care of everything that needs taking care of?”
“Who’s going to help me do what needs to be done?”

These are questions you might ask a funeral director when someone close to you dies, and when your immediate task is to bring loved ones together to say goodbye. Whatever the circumstances, your funeral director will hopefully work tirelessly to make the process as painless for the survivors as possible, and to put together a fitting memorial to the person who passed.

But what about after the funeral?

One of the most important tasks that needs to be done upon a person’s passing is settling their estate. And when that time comes you might find yourself asking the same questions: What do I do next? How am I going to do everything that needs to be done? And who’s going to help me do it?

When settling an estate, the person authorized by the court to do so—whether that person be called an executor or an administrator—must navigate a complex web of state and federal laws, make vital technical decisions, and try to maintain good relations among all the parties involved. A skilled, experienced attorney with an empathetic manner and an efficient, economical process can make a huge difference between whether the estate settlement process is painful or relatively painless, expensive or affordable.

What is probate and estate administration?

Simply put, probate involves the handling of an estate when someone passes away with a will. Estate administration is similar to probate, except it applies when a person dies without a will. The probate and estate administration processes are handled through a county’s Surrogate’s Court, and are designed to ensure that creditors are paid and that probate assets are distributed to the beneficiaries named in the will or, in the absence of a will, to the descendants of the deceased individual as governed by state intestacy law.

How does the process work?

Probate begins with a petition to open the estate and name a personal representative (such as an executor when there is a will or an administrator when there is not), who is responsible for the disposition of the deceased person’s property. The court requires a great deal of specific and detailed information in order for the petition to be granted. Sometimes compiling the required information is quick and simple. Sometimes it takes weeks or longer.

Once the petition is granted and a personal representative is named, the deceased person's assets are marshaled, debts are paid, and whatever is left over is distributed according to the will or state intestacy laws. Then the estate is closed.

Although that all might sound easy enough, in actuality settling an estate is a complex,  time-consuming process. And when there are complications, such as questions about or difficulty proving the family tree, or if someone wishes to challenge the validity of the will, the process becomes even lengthier.

Even in straightforward situations there are still numerous steps that must be taken, rules that must be followed, requirements that must be met, and deadlines that must be strictly adhered to. A personal representative who fails to do something correctly, and which results in any harm coming to estate assets, may be held personally liable for any damage to the estate. That is why while an attorney is not technically required to help settle an estate, practically speaking only a probate attorney can help ensure everything is done correctly and on time by advising the personal representative throughout the entire process.

What does a personal representative do?

Once empowered by the court to act, the personal representative must:

• notify all the people named as beneficiaries in the will, as well as all family members who have legal standing to inherit, whether they are named in the will or not 
  
• locate and protect the deceased person’s property
  
• prepare an inventory of all estate assets
  
• follow the provisions of the will or State intestacy law
  
• file estate tax and final income tax returns
  
• pay all estate debts from estate assets
  
• comply with all state and federal requirements
  
• distribute the property to the heirs after all proper procedures have been followed
  
• prepare a final accounting.
  

 How can I get help doing all this?

 Acting as a personal representative to the estate of a loved one is not only complicated, but often mentally draining as well. That is why personal representatives are empowered to hire an attorney of their choosing—whether or not the attorney prepared the will, in cases where there is a will—to help them settle the estate. A personal representative can also hire other professionals as needed, such as accountants and real estate brokers. Estate assets are used to cover all such expenses.

I have experience with estates of all sizes and levels of complexity, and my continual investment in efficiency helps to ensure the smoothest and most economical process possible. The process is also designed to meet each personal representative’s needs. For example, I can play an active role—essentially performing some or even many of a personal representative’s tasks—or a more passive role, handling only strictly legal tasks myself, and then advising the personal representative of what other tasks need to be done and by when.

If you have been designated as a personal representative, or need help in getting an estate administrator appointed by the Surrogate's Court, I am here to shepherd you through the process.

Additionally, if you have any questions or concerns about the probate or estate administration process, you are invited to contact me anytime, no obligation or charge, to discuss whatever you wish to discuss. I can be reached at:

Michael Bond, Esq.
Law Office of Michael Bond
515 Madison Avenue, 40th Floor
New York, NY 10022
T: 646-535-1529  |  F: 646-390-6763
mike@michaelbondlaw.com  | www.michaelbondlaw.com

 
DISCLAIMER: THIS IS ATTORNEY ADVERTISING. The information provided here is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Review of this document does not in any way constitute legal representation. Contacting Michael Bond or the Law Office of Michael Bond by telephone, fax, e-mail, or any other method does not constitute legal representation, nor is any information you provide protected by attorney-client privilege until otherwise advised.