Legal advice on Taxes and estate planning

Income Taxes Since the Internal Revenue Service always has a hand in everything, you may assume that you would have to claim an inheritance when you file your tax returns. In fact, this is not the case at all. You do not have to report a direct bequest as income, and this applies to life insurance proceeds that you receive from a company. Capital Gains Tax The best way to explain this part of the equation is through the utilization of a simple example. Let’s say that you inherit 100 shares of stock from your grandmother. It appreciated by $100,000 after she purchased it years ago. If she would have sold the stock while she was living, she would have to pay capital gains tax on the appreciation. Would you be required to pay capital gains tax on this $100,000 gain? Under these circumstances, you would not have to pay the tax, because you would get a step up in basis. For capital gains purposes, the value of the stock would be equal to the value at the time that you inherited it. As time goes on, if you eventually realize a gain, the tax would be applicable. Federal Estate Tax We have a federal estate tax in the United States, and it can have a significant negative impact on your legacy, because it carries a whopping 40 percent rate. The good news is that most people don’t pay the tax, because you can transfer a certain amount tax-free before the tax would be applied. This figure is called the estate tax credit or exclusion, and it is in excess of $11 million. We are not sharing a precise figure here because it fluctuates annually to account for inflation. There is an unlimited marital deduction that allows you to leave any amount of property to your spouse free of taxation, as long as your spouse is an American citizen. Since 2011, the estate tax exclusion has been portable between spouses. This means that a surviving spouse could use the exclusion that was allotted to their deceased spouse. Federal Gift Tax The federal gift tax was reenacted in 1932, and it has been in place ever since then. It is unified with the estate tax, so the exclusion is a unified exclusion that encompasses lifetime gifts along with your estate. However, there are three additional gift tax exemptions that can be utilized to divest yourself of assets in a tax-free manner. One of them is the annual gift tax exclusion that you can use to give as much is $15,000 to any number of people in a given year tax-free. You are also allowed to pay medical bills for others without incurring any gift tax exposure. This extends to the purchase of health care insurance for the benefit of someone else. Finally, there is an educational gift tax exemption. You can pay school tuition for students in a tax-free manner, but it is a tuition-only exclusion. It does not extend to books, fees, and living expenses. However, you could use your $15,000 per person, per year annual exclusion to provide additional support. And if you are married, you and your spouse could combine your exclusions to give as much is $30,000 tax-free to students or (anyone else) each year. Estate-Level Estate and Inheritance Taxes There are some states in the union that have state-level estate taxes, but Ohio is not one of them anymore. We did have a state estate tax until 2013, but it was repealed. You could face state-level estate tax exposure if you own valuable property in a state that has an estate tax. The exclusions in other states are typically lower than the federal exclusion, so you should gain an understanding of the state-specific laws if you are in this situation. A small handful of states have inheritance taxes. This is a tax that can be levied on distributions to multiple different inheritors when the same estate is being administered. Fortunately, there is no Ohio inheritance tax.

Attorney Thomas B. Burton answers a reader question with Attorney Matthew Underwood, about how to determine the principal value of an asset held in trust. Attorney's Underwood and Burton also discuss how the trust principal can generate income which is often distributed on an annual basis to trust beneficiaries. Follow Estate Planning Playlist: http://bit.ly/EstatePlanningVideos

Attorney Thomas B. Burton discusses how you can sell your home and potentially owe no capital gains tax on the sale of your home as long as you meet the IRS use and length of time tests. Attorney Burton discusses the IRS test to qualify for the capital gains tax exclusion on the sale of your home and discusses how the test works in practice. Subscribe Burton Law LLC: http://bit.ly/BurtonLawLLC

TRANSFER UPON DEATH REQUIREMENTS Section 64.2-628 of the Virginia Code outlines the requirements. https://law.lis.virginia.gov/vacode/title64.2/chapter6/section64.2-628/ Here are a few of the main requirements: • at least one beneficiary must be named • transfer must occur on Grantor’s death • the deed must be recorded prior to the Grantor’s death • the deed shall be exempt from recordation taxes unless it was a bargained-for exchange with consideration BENEFITS OF A TRANSFER UPON DEATH DEED This deed creates two primary benefits for the beneficiary: First, it is an instantaneous transfer upon the death of the Grantor since the deed is already on record at the local clerk’s office. No probate is required to facilitate the transfer. Second, the tax basis starts at that time of death. In many instances, a Grantor may wish to transfer a piece of property to the Beneficiary prior to death which starts the basis at that time. It generally is more favorable to the beneficiary to receive the property at a later time as opposed to sooner. For specific tax advice for your situation, please discuss with a tax professional. DETERMINING IF A TRANSFER UPON DEATH DEED IS BEST FOR YOU If you or someone you know needs further assistance with real estate, wills, trusts or estate law in Virginia Hanger Law is available to help and serves the following cities and counties in the greater Hampton Roads and Richmond areas: Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, Hampton, Newport News, Yorktown, Seaford, Poquoson, Williamsburg, James City County, Isle of Wight County, Smithfield, New Kent County, Toano, Gloucester, Hayes, Richmond, Henrico County, Mechanicsville, Ashland, Hanover, Midlothian, and Chesterfield County.

Summary for Spouse Beneficiary If married, name your spouse as primary beneficiary of your retirement account unless (1) you want to prevent your spouse from disinheriting your children or other preferred remainder beneficiaries after your death, which often occurs when family dynamics are disrupted, or your spouse chooses to remarry; or (2) you need to protect the account from a clear and present danger related to your spouse, such as concerns about your spouse’s spendthrift habits, susceptibility to undue influence, or qualification for government-sponsored health benefits. If one of the above-described exceptions applies, then choose a type of trust to name as beneficiary: 1. Conduit (favors income tax optimization, qualifies for stretch IRA treatment, all withdrawals pass through to spouse, trustee may not accumulate assets in trust, only makes sense if you name a third-party trustee) 2. Accumulation (favors asset protection, subject to usual 10-year liquidation rule, trustee may accumulate withdrawals from account or pass them through to beneficiary, only makes sense if you name a third-party trustee) 3. Charitable remainder (balances both income tax optimization and asset protection, trust assets remain in tax-deferred environment until distributed, trust pays out annuity or percentage amount to spouse for life then to contingent beneficiaries for term of years or life, balance to charity when distribution period ends, spouse may serve as trustee) Summary for Non-Spouse Beneficiaries When naming non-spouse beneficiaries, you should first determine your primary objective regarding how to distribute the retirement account to your beneficiaries: 1. Give outright (no desire to delay, restrict, or protect) 2. Delay for young child 3. Restrict in response to an identifiable clear and present danger 4. Protect from future threats (lawsuits, ex-spouse, debt collectors, etc.) If GIVE OUTRIGHT, then list the beneficiary names on the standard beneficiary designation form. If DELAY and account value is more than $100,000 per beneficiary, then name a type of trust as beneficiary instead:  1. Conduit (favors income tax optimization, qualifies for stretch IRA treatment until beneficiary attains age of majority then usual 10-year liquidation rule goes into effect, all withdrawals pass through to beneficiary, trustee may not accumulate asset in trust, requires third-party trustee) 2. Accumulation (favors asset protection, subject to usual 10-year liquidation rule, trustee may accumulate withdrawals from account or pass them through to beneficiary, no distributions required, requires third-party trustee until a specified age) If RESTRICT, then choose an Accumulation trust to name as beneficiary (same as accumulation trusts above and below, except beneficiary is ineligible to serve as trustee in most scenarios). Conduit and charitable remainder trusts might be feasible, but both require mandatory distributions that would not be restricted. If PROTECT and account value is more than $100,000 per beneficiary, then choose a type of trust as beneficiary instead: 1. Accumulation (favors asset protection, subject to usual 10-year liquidation rule, trustee may accumulate withdrawals from account or pass them through to beneficiary, no distributions required, beneficiary may serve as trustee) 2. Charitable remainder (adds income tax optimization, trust assets remain in tax-deferred environment until distributed, trust pays out annuity or percentage amount to beneficiaries for a term of years or life, balance to charity when distribution period ends, beneficiary may serve as trustee)

2020 Federal Legislation Brings Major Changes to IRA Planning A person's retirement accounts are often a significant part of their financial plan during life, and an important tool for benefiting their loved ones after death. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) brings both positive and negative changes to retirement planning. One major change is the option to delay receiving required minimum distributions, or RMDs, from retirement accounts until the owner reaches age 72. The prior rules compelled the RMDs to begin at age 70 ½. The delayed onset opens new doors for financial planning strategies and withdrawal options that alter the monthly benefits owners will receive from their retirement accounts. The SECURE Act changes how retirement accounts are distributed to beneficiaries after death. Upon a retirement account owner's death, the beneficiaries of the inherited account have important options that affect how much income the beneficiary will receive monthly from the account, and how those amounts will be taxed. Prior to January 1, 2020, non-spouses inheriting retirement accounts could stretch out monthly disbursements throughout their lifetime. The new rules require the inherited IRA to be completely distributed within 10 years of the original retirement account owner's death. This change will raise approximately $15.5 billion in additional tax revenue over the next decade. Fox example, under the prior rules, a 35-year-old beneficiary of a retirement account could choose to receive monthly distributions for over 45 years. The SECURE Act removes that stretch out option and requires the account to be completely dispersed within 10 years. The new rules limit the ability to stretch income tax deferral beyond the retirement account owner's lifetime and may push beneficiaries of an inherited account into a higher income tax bracket. Retirement account owners and beneficiaries should carefully review the new rules under the SECURE Act to understand how their finances will be affected. Safe Harbor Retirement Accounts The SECURE Act also makes it easier for small business owners to set up "safe harbor" retirement accounts, which are now less expensive and less complicated to manage. The new bill allows part-time workers to participate in employer retirement plans. Part-time employees working either 1,000 hours throughout the year, or who have worked for three consecutive years with at least 500 hours of employment, are now eligible to enroll in employer retirement plans.

Advanced Estate Planning in Oregon business, and supporting minor children. Some individuals may want legal guidance with additional matters beyond the scope of the basic legal tools mentioned above. Below are some examples: Retirement Plan Trusts (also called IRA Trusts) Your individual retirement plan is shielded from your own creditors and bankruptcy, but the same protection is not provided to anyone who inherits the remainder of your retirement plan assets after your death. Also, those who inherit retirement plans are more likely to choose a lump-sum payout rather than a long-term payout, or rollover. This results in harmful negative income tax implications for your beneficiaries. Many people cringe at the thought of their hard-earned retirement account being spent in a year or two by their children. A retirement plan trust helps resolve these issues and provides important protection for your beneficiaries. Charitable Remainder Trusts (CRATs and CRUTs) A charitable remainder trust is a trust that provides the trustmakers or grantors income for a number of years, after which a charity (or charities) of your choice receives the remaining trust assets. The benefits to you include a reliable steady stream of income for a number of years, a partial charitable income tax deduction, and possible capital gains tax relief. Charitable Lead Trusts A charitable lead trust is a trust you set up to provide income to a charity for a term. The longer the time period, the better the gift tax savings will be to you as the creator of the trust. After the term ends, the remaining property in the trust is distributed to the beneficiaries you designated, such as yourself, family, or others. Irrevocable Life Insurance Trust Irrevocable Life Insurance Trusts (ILITs) In general, your life insurance policy is included in your taxable estate at your death. If you wish to reduce estate taxes at your death, you may want to remove the insurance policy from your estate with an irrevocable life insurance trust. Additionally, you may be concerned that the beneficiaries of your insurance policy will not spend the proceeds appropriately upon your death. By designating a trust as the beneficiary of your policy and providing guidance to the trustee on how to invest or distribute those proceeds, you can simultaneously reduce taxes and have more control over the proceeds of your policy.

Advantages of a Revocable Living Trust Avoidance of Probate In particular, a revocable living trust can avoid multiple expensive and time-consuming probate proceedings when you own real estate in different states, as well as avoid the publication of the otherwise private financial details of your estate. Often the cost of settling a trust is substantially less than the cost of settling a will. Avoidance of Conservatorship A revocable trust can avoid the additional cost of a court-monitored conservatorship in the event of your incapacity, and can privately establish those individuals who will assist you with managing assets. Efficient Distribution A revocable trust can reduce delays in distributing your property after you die. A Trustee can generally take control of your assets and begin paying pending bills quickly and more efficiently than in a probate. A trust also avoids the demanding timeline and numerous documents required by the probate courts. Confidentiality Generally, the terms of your revocable living trust and your assets are confidential, with only your named beneficiaries and trustee having access to that information. Continuity A trust can provide for a smooth continuity of management of your property in the event of your incapacity or death. Flexibility A well-written trust can deal with asset protection issues including shielding assets for your beneficiaries in the event of lawsuits, creditor issues, or divorce. A well-written trust can even help a beneficiary maintain eligibility for government benefits while also receiving their inheritance. Minors who are set to receive funds from the trust may have the funds managed by an adult you designate until the minor reaches a particular age. Drawbacks of a Revocable Living Trust Expenses of Planning A revocable living trust is more complicated than a will to draft, and asset transfers can take time and can result in additional costs. However, these costs are often offset by avoiding the probate process. Expenses of Settlement Many people choose family or friends to handle their affairs upon incapacity or death. However, if you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). As a note, setting up a revocable living trust instead of a will does not eliminate the need for professional services of attorneys and accountants in the future. Ongoing Diligence Once the trust is established, you must be sure that all assets are properly titled to the trust, as well as assets you acquire in the future. Individuals dealing with the trustee (such as banks and title insurance companies) may want to review certain provisions of the trust to confirm the trustee’s powers and duties. Collier Law walks with clients through this process to help confirm each of these pieces is completed. We also serve as an ongoing resource for our clients as they acquire new assets in the future. Complexity Revocable living trusts often are more complex than wills and require you pay a bit more attention to your assets going forward. Unforeseen Problems Revocable living trusts can raise a variety of new challenges regarding the ability to borrow against property, title insurance coverage, real estate in other countries, Subchapter-S stock, certain pension distributions, and other issues. Only an attorney who focuses their practice on estate planning should tell you whether a revocable living trust is the best estate planning tool for you, your beneficiaries, and your assets.

Revocable Living Trusts A newly-created trust does not yet own any assets or property, so it must be “funded” by the individuals who created it. The individuals who create a revocable living trust are referred to as the grantors, but may also be called trustors or trustmakers. Funding a trust is the process in which the grantors will change the ownership of their assets to be owned by the trust. The grantors will continue to manage their assets the same as they did before the trust was created. However, they will now be doing so as the current trustees of the trust. All assets stay under your control, and remain held under your social security number. During your lifetime, you will be both the grantor and trustee of your trust. In the event that you need assistance in managing your financial affairs, the trust will describe who may step in as a successor trustee and under what circumstances that individual will assist you. Upon your death, the trust will become irrevocable. Once the trust is irrevocable, it generally cannot be modified or cancelled. At that point, your successor trustee will step in and manage the assets held in the trust according to your wishes and provisions of the trust. Those provisions also describe the beneficiaries who will receive or inherit assets and property from your trust upon your death. Can a revocable living trust help avoid probate? Trusts are a very common and efficient estate planning tool. Many people are not interested in having their estate settled by the probate courts under the directions of a will. A well-prepared and maintained trust will bypass the delay and expense of probate. It can also reduce taxes on your estate upon death. The trust will describe who may step in as trustee in case the grantors of the trust become incapacitated. Without a trust, the courts may need to intervene to appoint an individual to manage your property through a conservatorship. A conservatorship is also a costly and burdensome process which can be avoided with a revocable living trust. Avoiding probate can help a modest estate preserve its value for beneficiaries. If I have a revocable living trust, do I need a will? Even if you have a revocable living trust you will still need a pour-over will. As its name suggests, a pour-over will can be used to “pour over” into your trust any assets accidentally left out of your trust. This includes assets not properly titled in the name of your trust during your lifetime. Ideally, the pour-over will is not needed. However, this document serves as a safety net for the trust. The terms of the pour-over will state that your trust is your sole beneficiary, and this will allow any accidentally-omitted assets to be distributed through the provisions of your trust once probate is completed. How do I create a revocable living trust? If a revocable living trust is appropriate for you, you will need a written agreement which sets out your wishes and plans for the management and distribution of your assets. Once the trust agreement is in place, you must transfer your assets to the trust. Your assets will now be owned by the trust and managed by you as trustee of the trust. Real property deeds and other legal documents or paperwork may be necessary to ensure your bank accounts, investment accounts, and other assets are properly transferred to the trust. Assets not formally transferred to the trust might still be subject to probate. You must also have a pour-over will to ensure that any property not properly placed in your trust before death can be transferred to the trust after death. If there are assets still owned in your individual name rather than your trust upon your death, then your pour-over will can transfer these assets to your trust. If the assets requiring probate include personal property valued under $75,000 and real property valued under $200,000, an Affidavit of Claiming Successor can be filed with the probate court which allows for a shorter probate process. If your assets exceed one or both of those thresholds, a more comprehensive probate process is required. What does a revocable living trust cost? The cost of a revocable living trust may depend on how complicated your assets and your estate planning goals are, how many assets must be transferred to the trust, and whether tax planning is necessary. Before you direct an attorney to set up a trust for you, ask for estimates of how much the entire process will cost, how much a will would cost in place of a trust, and how much probate might cost given your assets and circumstances. Some law firms, including Collier Law, offer a complimentary initial consultation to learn about your estate planning goals before estimating the cost to prepare your documents. A revocable living trust plan should include the trust document, assistance with funding your assets into the trust, a “pour-over” will to serve as a safety net for assets inadvertently omitted from the trust, and a durable power of attorney. It should also include related legal documents, such as an advance directive to address medical decisions and a certification of trust, which summarizes important trust terms and information.

Oregon Trust Settlement If you are named as trustee of a trust, it is important to learn about what will be expected of you, both by the family and under Oregon law. A trust, or revocable living trust, is a commonly used legal tool for estate planning. Personal property and real estate are owned by the trust. The individual who is responsible for managing those assets upon the death of the trust’s creator, and ultimately distributing the assets to the beneficiaries, is called the successor trustee. My parents named me as successor trustee. What do I do now? If someone named you as successor trustee of their trust, you are not obligated to accept the role as successor trustee. We encourage our clients to bring their successor trustees in for a conversation about what that job entails, if that is helpful to the family. Our office can advise you on what your duties may be if you decide to move forward. A successor trustee must locate and manage all trust assets, such as accounts, property, and real estate. The trustee must notify trust beneficiaries of the trust settlement and follow the instructions described in the trust document itself. Upon accepting the role of successor trustee, you will be serving in a fiduciary capacity and will owe certain duties to the beneficiaries of the trust. If these duties are not followed carefully, the successor trustee can become personally liable to the trust beneficiaries. It is important to make sure you understand the duties involved with serving as successor trustee before accepting the nomination. What are the actions a trustee takes when someone passes away? Settling a trust is a private process, and the court is generally not involved. However, a trustee must still follow strict guidelines set forth in the trust document and Oregon law. A trustee (also referred to as a successor trustee) must administer the trust and manage its assets in good faith and in the best interests of the trust beneficiaries. There are duties regarding disclosures of information and duties requiring preparation of financial reports. Successor trustees usually call upon legal, accounting, and investment professionals for assistance to efficiently settle the trust. The first step you should take as successor trustee is find an attorney to help walk you through your duties. Overview of a Successor Trustee’s duties and responsibilities 1. A Successor Trustee’s General Duties A successor trustee is authorized to deal with all facets of the trust estate. The successor trustee owes each beneficiary and each creditor a fiduciary duty. They must treat the trust assets with the same standard that a bank uses when it must safeguard assets. They must administer the trust solely in the best interests of the beneficiaries. A successor trustee also owes the beneficiaries a duty of impartiality – they cannot prefer one beneficiary over another. They must control and protect all trust property. A successor trustee also has a duty to keep records. Finally, a successor trustee has a duty to inform and report regarding trust administration. 2. Trust Checking Account / Tax ID Number A separate Tax Identification Number for the trust must be assigned by the IRS after the grantor passes away. A new trust account is set up under this Tax ID Number. That centralized account generally receives all of the assets as they are consolidated and old accounts are closed. 3. Notices A trustee must keep “qualified beneficiaries” of the trust reasonably informed about trust settlement and of the material facts necessary for the beneficiaries to protect their interests. Qualified beneficiaries must promptly receive certain information, including a complete copy of the trust along with notification that the trust became irrevocable upon the death of the Grantor or Grantors. At least annually, and upon termination of the trust, a Trustee Report must be sent to certain individuals. The report must include a list of trust property and liabilities, the market value of all assets, and all receipts and disbursements of trust property. 4. Inventory An Inventory of the trust assets should be compiled and provided to the beneficiaries. If any asset is owned solely in the decedent’s name, then a court process may be required to transfer property from the decedent to the trust. 5. Tax Returns A successor trustee will need to see that the final income tax returns are prepared for filing with the State and the IRS. If fiduciary income tax returns or other returns are necessary, a successor trustee should also ensure that those are prepared. The successor trustee also has a duty to ensure all estate-related tax returns are filed in a timely manner. If estate and gift tax returns are filed, qualified appraisals may be needed for certain assets. 6. Distributions When all the necessary tax returns have been filed and creditors have been paid, the trust will be ready for distribution. A successor trustee then prepares a final Trustee’s Report, accounting for all receipts and disbursements of the trust property to the beneficiaries, which will include a proposed distribution. The Trustee must also disclose any fee they propose to take. Once the proposed distributions are approved or a time to object has passed, the assets are distributed to beneficiaries, along with receipts which they sign.

Concerns There was concern that the sunset of the higher exclusion amount and reversion to the lower amount could, retroactively deny taxpayers who die after 2025 the full benefit of the higher exclusion amount applied to 2018-2025 gifts. This scenario has sometimes been called a “claw back” of the applicable exclusion amount. In November, the IRS issued new regulations that make clear that gifts made within the time period of the increased exemption amount used before death will not be “clawed back” into the decedent’s estate and subject to estate tax. Step-Up Basis There are no 2020 changes to the rules regarding step-up basis at death. That means that when you die, your heirs’ cost basis in the assets you leave them are reset to the value at your date of death. Portability Election The Portability Election, which allows a surviving spouse to use his or her deceased spouse’s unused federal estate and gift tax exemption, is unchanged for 2020. This means a married couple can use the full $23.16 million exemption before any federal estate tax would be owed. To make a portability election, a federal estate tax return must be timely filed by the executor of the deceased spouse’s estate. Annual Gift Tax Exclusion For 2020 the annual gift tax exclusion remains at $15,000. This means that an individual can give away $15,000 to any person in a calendar year ($30,000 for a married couple) without having to file a federal gift tax return. New York State’s Estate Tax Exemption Despite the large Federal Estate Tax exclusion amount, New York State’s estate tax exemption for 2020 is $5.85 million. This is a slight increase for inflation from the 2019 exemption of $5.74 million. New York State still does not recognize portability. New York still has the “cliff” meaning that if the estate is valued at more than 105% of the exemption amount ($6,142,500 in 2020) then the estate loses the benefit of the exemption and pays tax on the entire estate. Gift Tax New York re-instated its short-lived elimination of the three-year lookback on gifts effective January 15, 2019. However, a gift is not includable if it was made by a resident or nonresident and the gift consists of real or tangible property located outside of New York State; while the decedent was a nonresident; before April 1, 2014; between January 1, 2019 and January 15, 2019; or by a decedent whose date of death was on or after January 1, 2026. Conclusion Most taxpayers will never pay a federal or New York State estate tax. However, there are many reasons to engage in estate planning. Those reasons include long term care planning, tax basis planning and planning to protect your beneficiaries once they inherit the wealth. In addition, since New York State has a separate estate tax regime with a significantly lower exclusion than that of the Federal regime it is still critical to do estate tax planning if you and/or your spouse have an estate that is potentially taxable under the New York State law.

Where Does the Testator Need to Sign? In order for a Will to be properly executed, The person making the Will (the “testator”) must sign at the end of the document. If there are bequests or information below the signature, the Court will ignore anything below the signature line. Do I Need Witnesses to See How to Execute a Will in New York? Yes, you need witnesses to execute a Will in New York. The rules for execution of Wills are set forth in EPTL 3-2.1. Pursuant to EPTL 3-2.1, the Will must be witnessed by at least two witnesses. Interestingly, however, the witnesses do not have to sign the Will at exactly the same time as each other. Nor do the witnesses have to sign at the same time as the testator. Instead, the testator can either sign in front of the witnesses or acknowledge to the witness or witnesses that the instrument is his Will. The testator can sign and then acknowledge the signature to the witnesses at a later point in time. The witnesses must sign within thirty (30) days of the testator signing. The witnesses do not need to know each other. They do not have to have met before. In one example, a Will was considered improperly executed where a hospital technician was cleaning the bathroom and was asked to come sign a document. The technician had no idea what he was signing and the testator did not tell the technician what was being signed. The technician was also never shown the testator’s signature. Do I Need Somebody to Show me How to Execute a Will? Technically you do not need anybody to show you how to execute a Will. You can Execute the Will on your own but you do need some witnesses. Any person can be a witness. However, if the witness to the Will is also a beneficiary under the Will, and that Will becomes questioned, the witness will need to forego their bequest under the Will in order for the Will to be admitted to probate. Do I Need to Say or do Anything Special in Order to Execute a Will in New York? While there is no special dance or song or magic words, the testator needs to do something to publish the Will. That is, the testator must either say or demonstrate through actions, that the instrument that is being signed is the Will. The testator must make clear to the witnesses that the document being signed is a Will and not just any ordinary document. The witnesses must walk away from the signing believing that they are witnessing a Will being signed so that the incident can hopefully stick out in their minds. Do I Need a Notary to Show me How Execute a Will in New York? A notary is not needed for the signing of the actual Will. A notary is, however, required, if the witnesses are going to be signing a document known as the “Self-Proving Affidavit.” Do I Need to Register the Will with a Court After I have Executed it? In New York, there is no official place to register Wills. If a testator wants, they can file the Will with the Surrogate’s Court of the County where they reside for safekeeping. The testator can also keep the Will among their possessions, preferable in a fire proof vault. The testator can also leave the Will with the attorney who drafted it. It is typically not advisable for the testator to keep the Will among their possessions because if the testator dies with the Will among their possessions and the Will cannot thereafter be found, there is a strong presumption in New York Law that the testator intended to revoke the instrument. Why is it Important for me to know How to Execute a Will in New York? It is important to properly execute your Will so that the Will can be admitted to probate and so that your beneficiaries can avoid a Will contest as to the question of due execution. We can help ensure that your Will is properly drafted and executed. Contact us to learn more.

#1 Avoid probate. Keep in mind that probate is the court’s way of making sure someone’s wishes are honored and debts paid. Probate is more expensive than trust administration. The estate will also avoid ancillary probates if have real property in other states. Otherwise, you are duplicating the time and expense of probate in every state where you have property! #2 Convenience and assurance of gifting according to your plan. #3 Privacy and control (unless being litigated). With probate, interested persons have broad rights to step into that action. With trusts, if someone is unhappy, they have to initiate a civil suit and prove they have a right to step in. There is no longer that open door. This can be a very strong deterrent for a somewhat difficult beneficiary. #4 Reduce or avoid taxes. #5 Controlled gifting to certain beneficiaries. #6 Provide for special or supplemental needs. There may also be special/supplemental needs concerns. Unfortunately, siblings may not take care of your kids the way the parents would. It is important to set things up properly for your special needs child. #7 Reduce probability of litigation.

What are the basics of long term care planning? Theodore Alatsas, Esq. describes the need for long term care planning.

SECURE Act Changes The SECURE Act makes several changes to retirement accounts, both in how we can save and how they will be spent, but the biggest change practioners are concerned about is that the SECURE Act eliminates, for some beneficiaries, the ability to stretch an Individual Retirement Account (“IRA”) over the inheritor’s life expectancy. Current law allows beneficiaries of IRAs to create an inherited IRA account and take minimum required distributions over their life expectancy. This allows the beneficiary to continue to enjoy tax-deferred growth in the account yielding large increases in value over time if the beneficiary only takes minimum required distributions. Effects to IRAs However, with few exceptions to be discussed below, now inheritors of IRAs will have to liquidate the account over a period of ten (10) years. For larger IRAs will few or one beneficiary, this will mean a great loss of tax deferred growth. For example, under the old rules, if a 30-year-old beneficiary inherited a $1,000,000 IRA, she would only have to take $18,762 the first year, with the distribution increasing about $2,000 per year for the first 10 years. However, under the SECURE Act, the same beneficiary will have to take the IRA out over 10 years, or about $142,378 per year. For smaller IRAs, or IRAs with many beneficiaries, the effects of the SECURE Act will not cause substantial concern. However, if your estate plan includes a large IRA for few beneficiaries, the impact on how much they will be forced to withdraw is significant. IRAs and Trust Planning Now more than ever, you may consider having the IRA pay to a trust for your beneficiary. While the trust will still be required to take distributions over ten (10) years, the trustee will have discretion on whether or not to distribute the funds to the beneficiary or to accumulate the withdrawals within the trust. For beneficiaries with creditor problems, having a trust will provide protection against the large withdrawals which must be taken in a small amount of time. Roth IRAs Another technique to protect against the beneficiary having to take large withdrawals over ten (10) years is to consider converting your IRAs to Roth IRAs, that is, a retirement account which grows tax deferred but on which the tax has already been paid and does not mandate required minimum distributions. Depending on the IRA owner’s tax bracket, you should discuss the Roth conversion with your tax advisor and financial planner. Many people are able to convert small portions of their IRA over time to a Roth, lessening the income tax consequence to the IRA owner. Exceptions to 10 Year Rule There are some exceptions to the ten (10) year withdrawal rule. If your IRA beneficiary is the surviving spouse, the IRA owner’s minor child, a disabled or chronically ill person, or a person not less than ten years younger than the IRA owner, the requirement to liquidate over ten years does not apply. However, for the minor children exception, once they reach the age of majority, the ten (10) rule is reinstated. Other Changes In addition to the changes to how we leave retirement accounts to our beneficiaries, the IRA owners will also see some changes. Namely, required minimum distributions will now not have to be taken until the participant reaches the age of 72 (up from 70 ½), IRA owners can contribute to their IRA so long as they are working (eliminates age limit for contributions, formerly at 70 ½), a safe harbor for employer liability protection was added opening the door to more annuity products as possible investment choices and there will now be exception to the 10% penalty rule for distributions taken from the IRA by the owner prior to reaching age 59, if said distributions are used in relation to a birth or adoption (however, these distributions are subject to a $5,000 lifetime maximum, and are income taxable). Conclusion Whether or not the SECURE Act will affect your estate plan will depend on the individual’s assets and planning goals. Talk to your estate planning attorney to see if there are any updates you should be making.

Three Common Misconceptions About Medi-Cal Health Insurance Resource Limits and Special Needs Trusts Health insurance is one of the most complex and difficult to navigate areas of American life for both the average consumer and advocates counseling on health insurance options.  The benefits of cost control that the Affordable Care Act was intended to bring about seem to have been lost in political infighting and program changes over the first two and a half years of the Trump Administration. For California families eligible for full-scope healthcare coverage with income up to 300% of the poverty line or as a result of being categorically needy as aged or severely disabled, Medi-Cal’s income and resource requirements are strict and zealously enforced.  No individual receiving Medi-Cal may have more than $2000 in non-exempt resources at any one time and no married couple may have more than $3000. This requirement is enforced regularly, and families and individuals often lose healthcare coverage in times of need because they fail to maintain bank account balances or other assets below the monetary threshold.  Further, the Medi-Cal program may actually assess overpayments against individuals who failed to report changes in assets, which can number in the tens of thousands of dollars. Where a family member has a severe mental health disorder, it is nearly impossible for that person to save for a home or accumulate a savings while not running afoul of the resource requirements.  There are many misconceptions about public health insurance and Medi-Cal in particular, and I only have space in this article to discuss three.  But everyone who receives some form of Medi-Cal should know that there are ways to provide a decent life and economic security for disabled individuals regardless of these strict requirements.  Some of these methods are discussed below. I. MISCONCEPTION NUMBER ONE: THERE IS NO WAY TO SAVE ASSETS FOR FUTURE USE WHILE ON MEDI-CAL Many people have this misconception because Medi-Cal informs them generally that they can never own more than $2000 in assets individually.  This is a general requirement for receipt of full-scope healthcare coverage. However, assets are only owned by an individual if those assets are currently accessible to that person.  I often advise my clients to plan for future home purchases (one home which is a principal place of residence is an exempt asset for Medi-Cal) by placing currently existing savings and other monies in a Special Needs Trust (“SNT”).  An SNT provides for continuous distribution of money to a beneficiary (the person with a disability) and may be managed by a family member or other trusted individual, who acts as the trustee. The most important provision in an SNT is the section making distributions to the beneficiary discretionary, thereby preserving the assets in the trust as assets of the trust, and not of the disabled individual.  This provision distinguishes an SNT from a Revocable Living Trust (or Irrevocable Trust of a deceased spouse) which retain assets as property held and managed by the person creating the trust or the estate. A properly drafted SNT preserves Medi-Cal and can also work for numerous other public benefit programs, both state and federal. II. MISCONCEPTION NUMBER TWO: THERE IS AN ASSET TRANSFER PENALTY FOR SAVING ASSETS To be clear, asset transfer penalties do exist for certain kinds of public health insurance plans, including Medi-Cal.  The federal law provides for transfer penalties for Medicaid benefits, including nursing home or long-term care, of which Medi-Cal is an included Medicaid program.  Basically, the formula penalizes individuals who transfer away their savings or other non-exempt assets in order to qualify for Medi-Cal and who otherwise have no other motive for doing so.  The transfer penalty is a period of ineligibility for health insurance, which can last for years on end, depending on how many months the transferred assets would have provided for the basic needs of the individual who wants to receive Medi-Cal.  However, in California, there is currently no asset transfer penalty for assets gifted or transferred to third parties or to a special needs trust where an applicant requests non-long-term care or non-nursing home care Medi-Cal (meaning all other types of health insurance).  This may change in the future, but this is currently the way the law and regulations are structured and enforced. III. MISCONCEPTION NUMBER THREE: THERE IS NO WAY TO SAVE ASSETS FOR SOMEONE WITHOUT LEGAL CAPACITY Individuals and families with mental health or cognitive disabilities often believe that there is no way to benefit someone with a serious mental health issue, young or old, because that person cannot set up a trust on their own for lack of capacity.  This is false. Federal law specifically provides for the creation of third-party Special Needs Trusts, usually set up by a parent, child, or other interested party or family member, which can be funded with assets of that person or transferred assets (assuming authority to do so) of the disabled beneficiary.  The creation, funding, and management of these trusts can be complex, and different types of income placed in a trust require different management practices and designations to preserve the viability of the income stream and the eligibility of the disabled beneficiary for public benefits. But these trusts are a viable method of ensuring that a loved one has a decent life, instead of living on the margins of poverty that some public benefit programs require.  Specialized legal advice and drafting should be consulted to set up this type of trust. Utmost care is required to ensure that the objectives of you and your family to preserve public benefits eligibility while providing for discretionary trust payments to a family member with a disability are fulfilled. Please contact me at [email protected] or (408) 634-9850 (my office referral line) with any questions or concerns regarding the above. I provide free consults to eligible clients and enjoy helping families and individuals navigate these complex public benefits eligibility and health insurance issues. For more information on my firm and our mission and practice areas, please visit the firm website below. Firm Website www.klolawfirm.com

Trust Planning With regard to gifting money to your daughter who has creditor issues, you should create a trust for her benefit and gift the money to the trust, rather than her directly. This trust, commonly referred to as an Inheritor’s Trust, will protect this gift from outside invaders, including creditors. Inheritor's Trusts Most Inheritor’s Trusts provide that any income generated from the trust shall be paid to the beneficiary and principal distributions can be made for any reason if there is an independent trustee or for health, education, maintenance and support if your daughter is her own Trustee. However, your lawyer can customize the language to provide anything you desire. While beneficiaries can be trustee of their own trust, if you are concerned about your daughter’s spending habits you may consider naming someone else to be trustee for her or naming a Co-Trustee to act with her. Similarly, with regard to your minor grandchildren, you should consider creating Inheritor’s Trusts for each of them and gift the money to their trust. This will give your grandchildren creditor protection and will avoid a guardianship proceeding. Because minors are considered unable to own property in the eyes of the law, gifting them large sums of money may force their parent to become their property management guardian to gain access to the funds. Uniform Transfers to Minors Act Another option is to create a custodian account under the Uniform Transfers to Minors Act (“UTMA”). UTMA allows funds to be held by an adult custodian until that grandchild reaches 21 years old at which point the beneficiary is entitled to do anything he or she wishes with the account. The custodian can access the funds prior to the child’s age of majority for limited purposes. Depending of the size of the gift and whether or not you want your grandchildren to have unfettered accessed to the funds at age 21, a trust or an UTMA account is the wisest choice when giving money to minors. Gifting and Taxes Lastly, whenever making gifts to family members recall that any gifts over $15,000 must be reported on a gift tax return in the year following the gift. Any amount of the $15,000 will come off of your estate and gift tax exemption, which will be $11.58 million as of 2020. To the extent that you have gifted more than your allotted exemption, a gift tax will be imposed.

Estate Planning Primer for newly initiated My short primer on estate planning is that it offers one of the most substantial ways that you can define how our laws, in particular property rights, affect your family. It offers you ways to organize your assets (both how they benefit you now and after your passing), formalize family decisions (such as guardianships), gain some protection from creditors, do some tax-planning, and make health-care decisions ahead of time. Based on how you want to approach your plan and the specifics of your life situation, your strategy can include anything from a simple will and a health-care directive, to a full suite of documents (trusts, will, health-care directives, powers of attorney, etc.) that maximizes your present-day wishes. You may already have a plan in place, and if so, I’d recommend that you review that plan with someone every 3-4 years. Many of the tax law changes and some of the estate planning recommendations specific to your situation likely have changed in recent years. Moreover, your wishes and perspectives on your plans may have changed Estate Planning terms WILL: Without any planning, state law will dictate who inherits your assets after your death. The easiest way to be sure your specific wishes are met is to prepare a simple will, also known as a basic will, to formalize your plan. TRUST: A trust is a legal entity created under state law with a purpose to manage and distribute assets to your defined beneficiaries. Trusts can be used to minimize taxes, simplify or eliminate the probate process, and protect assets. They can be as simple or as complex as the situation and your plans demand. ADVANCE DIRECTIVE: An advance directive is a legal document to spell out your decisions about end-of-life care ahead of time. It also allows you to designate someone to make health care decisions on your behalf, guided by the directions included in your directive. We use a format named “Five-Wishes”. FINANCIAL POWER of ATTORNEY: A power of attorney is a legal document you sign to grant someone you trust with authority to make decisions on your behalf. It can grant authority as broad or as narrow as you decide, and typically only springs into effect if you become physically or mentally incapacitated. PROBATE: California Probate is a legal proceeding required to settle a deceased person's estate, paying all debts of the decedent, and distributing the property to the heirs and beneficiaries. It is avoidable with proper planning. If not avoided, the process costs upwards of $4,000 and can take the better part of a year.