April 2014 Newsletter

Welcome Back

Schanker and Hochberg P.C. is a premier Estate Planning law firm. We offer legal services for sophisticated Estate and Gift Tax planning, Decedent Estate Administration and Probate services, Business Succession Planning, Charitable Giving, Special Needs Planning for persons with disabilities, simple Will planning, and all aspects of Elder Law planning including Medicaid planning and applications.

Our website provides detailed information about our practice and the services we offer. It also is an excellent resource for articles of interest about Estate Planning and Estate and Gift Tax Laws. A copy of each newsletter will always be available on our website.

Estate Planning is so much more than just tax planning. There is a considerable decision-making process. Schanker and Hochberg P.C. has over 30 years of experience in counseling clients for their Estate Planning needs.

Practically Speaking!

Statistically, 60% of all adult Americans die with no estate planning documents in place whatsoever — no Will, no Trust, nothing. Eighty percent of all adult Americans who die will have either no estate planning documents in place, or improper ones. Yet 100% of adult Americans will die.

If you are in the 60%, even with very modest assets (yes, this applies to adult children and grandchildren as well), estate planning documents are an absolute necessity. At the very least, health care decisions must be made, along with decisions about who will make financial decisions in the event of incompetency and who will receive assets upon death. Even if you have documents you believe adequately cover the situation, relationships change constantly, and tax and legal rules change even more frequently, so reviewing your estate planning documents at least annually only makes sense. Schanker and Hochberg does not charge a fee for that annual review.

If you have documents in place, make sure someone other than you and your spouse knows where they are and has access to them. A document that can't be found is no different than one that was never signed.

The only common bond all human beings share is mortality. We buy automobile and homeowner's insurance despite hoping we'll never need it — yet death, life's one certainty, is something far too many of us fail to plan for properly.

Huntington Townwide Fund Honor

The Huntington Townwide Fund has named Steven M. Schanker as an honoree at their 2014 Gala Fundraiser, in honor of his outstanding achievements in the Huntington community.

Gifting to Minors

Gifting to minors can be a great estate planning vehicle to remove assets from your taxable estate, and a good way to leave something to your children and grandchildren while you're alive to see them enjoy it. Many gifting techniques are available; which is best depends on the amount you intend to give, the control you want over the funds, and the funds' purpose.

Custodial Accounts are financial accounts set up for a beneficiary and administered by a responsible custodian (usually a parent), who manages and controls the money until the minor turns 18 or 21, at which point the minor gains control.

• Advantages: the donee can use the money for anything; easy to set up; favorable tax treatment (the first $950 of unearned income is tax-free, the next $950–$1,900 is taxed at a favorable child rate, and the rest at the custodian's rate).
• Disadvantages: the child gains control at a young age; funds cannot be transferred between beneficiaries; contributed funds cannot be taken back unless the child agrees; and the donee may have to file a tax return each year they otherwise wouldn't need to.

529 Plans are brokerage accounts set up to fund an education.

• Advantages: easy to set up; tax-free growth if funds are used for a qualified educational institution; tax deductions for contributions in some states (New York gives up to a $10,000 deduction for a married couple with a NY plan); funds can be transferred between beneficiaries.
• Disadvantages: funds can only be used for higher education, or a 10% penalty plus tax applies to accumulated earnings.

Gift Trusts are trusts set up to gift funds to children or grandchildren, giving the donor the most control over how and to whom funds are distributed. The donor designs the terms and appoints a trustee; to keep funds outside the donor's taxable estate, the trust must be irrevocable.

• Advantages: customizable ages and circumstances for distribution; funds can be used for anything the terms allow.
• Disadvantages: trust tax rates are less favorable than individual rates (best to distribute income to beneficiaries for more favorable taxation); cost of preparing annual income tax returns and legal fees to set up.

Paying an education institution directly does not count as a gift at all, but forgoes any opportunity for the gifted asset to appreciate in the child's or grandchild's (usually lower) tax bracket, and the opportunity is lost once you pass away.

Paralegal Perspective — Nikki Willard: From Drafting to Signing

The paralegal process for preparing documents for signing is called "finalizing," and is customized to each client's decisions and objectives. It begins with a drafting assignment from an attorney, after planning decisions have been discussed at length with the client. Drafts are prepared, reviewed by the attorney, revised, and sent to the client along with a list of any missing information needed to finalize the documents. Many clients have questions upon receiving drafts, prompting a review appointment with the attorney, followed by further revisions until the client approves and provides all missing information, at which point a signing appointment is scheduled.

It's important that clients provide all missing information before scheduling a signing appointment, since complete information up front prevents hasty last-minute decisions. We remain available for medical emergencies requiring last-minute drafting, but otherwise try to avoid rush situations.

Once a signing appointment is scheduled, the finalization process begins — anywhere from two or three hours to a full day, depending on the magnitude of the documents. Documents are prepared on high-quality paper with custom manuscript covers, wallet-sized emergency health care laminate cards for health care directives, and a letter explaining how the documents should be stored, all presented in a portfolio at the signing appointment.

If a scheduled signing appointment is cancelled at the last minute, an extra fee may apply, reflecting the additional time it takes the paralegal to go through the process again.

Estate and Gift Tax Update

Federal. Several important federal exemptions and exclusions, indexed for inflation, rose in 2014. The Federal Estate, Gift, and Generation-Skipping Transfer Tax exemptions rose to $5,340,000 per person, up from $5,250,000 in 2013. The annual gift tax exclusion for gifts to non-U.S.-citizen spouses rose to $145,000, up from $143,000. The annual gift tax exclusion for all others remains at $14,000. Those who had previously maximized their federal exclusion now have additional gifting opportunity.

New York State. Governor Cuomo proposed legislation to change the New York Estate Tax rules, gradually increasing the then-current $1 million exemption to $5,250,000 (then indexed for inflation) over five years, and reducing the top tax rate from 16% to 10%. The proposal would also require all taxable gifts made by a New York resident after March 31, 2014 to be included in the gross estate for New York State estate tax purposes. Unlike the Federal regime, there is no portability of the unused exemption between spouses in New York. This legislation was, at the time, a proposal and not yet law.

What to Know: Beneficiary Designations

The most common Estate Planning blunder is beneficiary designations gone wrong, or no beneficiary named at all. Beneficiaries are assigned to assets such as life insurance, retirement assets (IRAs, 401(k)s, annuities, pensions), and often bank and investment accounts via "transfer on death" designations. Common blunders include:

Naming minors. Minors are incompetent in the eyes of the law and cannot own property in their own name; a guardian must be appointed as custodian, and if you haven't done so by Trust or otherwise, a Court will appoint one, requiring legal intervention.

Naming special needs individuals. If someone receives needs-based government benefits like Medicaid or Supplemental Security Income, an inheritance will likely cause them to become ineligible for continued benefits. A Supplemental Needs Trust is a common technique to benefit the intended beneficiary without interfering with those needs-based benefits.

Not naming anyone. A Surrogate's Court proceeding will be required to distribute the account through the Estate (Probate if a Will exists, Administration if not), subjecting the account to the Estate's debts, such as credit card debt or student loans. IRAs and 401(k)s also won't be able to "stretch" distributions over a beneficiary's life expectancy, forcing payout within five years of the owner's death.

Forgetting to make necessary updates. If you change jobs and roll over your retirement plan, make sure your beneficiary designation rolled over too, and confirm designations are on file whenever your bank or financial institution changes. Other red flags include the death of a named beneficiary, or a separation or divorce from a spouse named as beneficiary.

A beneficiary designation supersedes your Last Will and Testament or Trust, so make sure that's what you intend, and review your designations regularly.

Charitable Contributions

Be sure to get a written acknowledgment of charitable contributions. For contributions in excess of $250, a cancelled check is not enough to sustain the deduction; there must be a "contemporaneous" acknowledgment from the charity stating the charity's name, the amount of any cash contribution, a description of any non-cash contribution, a statement that no goods or services were provided (if applicable), and a description and good-faith estimate of the value of any goods or services provided in exchange.

This requirement applies to all charities, including private foundations. The IRS considers an acknowledgment "contemporaneous" if it's provided by the charity before the tax return claiming the deduction is filed.

In one case, a taxpayer made a substantial cash contribution to his church, but the church failed to send a contemporaneous acknowledgment. When later audited, the IRS refused the deduction; the taxpayer obtained a belated acknowledgment letter, but the IRS deemed it not contemporaneous, and the court upheld the IRS. The moral: make sure your charity provides a contemporaneous written acknowledgment containing everything the IRS requires.

Extensive Services at Schanker and Hochberg P.C.

1. Complimentary Initial Consultations for Estate Planning, Probate, and Estate Administration (not for matters of Elder Law or Special Needs Planning)
2. Complimentary Annual Review meetings for existing clients
3. Complimentary Family meetings for existing clients
4. Tax alert services for existing clients

Our main office is housed in an elegantly restored Victorian structure in the heart of Huntington Village. Here, we welcome you and your family into a relaxing, warm setting where we will work together to improve your circumstances and achieve your goals. To better serve our clients and their families, we also have convenient office locations in Midtown Manhattan and New Jersey; we also offer our services to clientele in Florida and California.

Highlighted S&H Attorney: Andrea B. Schanker

Andrea B. Schanker, Esq. — Partner, received her Bachelor of Arts degree in Clinical Psychology from University of Rochester in 1999, and her Juris Doctorate from New York Law School in 2002. Andrea is a licensed member of the New York and New Jersey Bar Associations, and was the Secretary of the Huntington Lawyers' Club, a member of the Suffolk County Bar Association, and an active member of the New York State Bar Association's Trusts and Estates Section and Elder Law Section, as well as the American Bar Association and the Huntington Chamber of Commerce.

Ms. Schanker joined Schanker and Hochberg P.C. in 2004 as an Associate Attorney specializing in Estate Planning, Estate Administration, Business Succession Planning, and Elder Law, and was made a Partner as of January 1, 2014. She regularly delivers Estate Planning presentations to professionals in the financial industry and their clients, and advises accountants, financial advisors, and insurance advisors on estate tax issues.

Andrea lives in Huntington with her husband, Michael Abruzzo, and their daughter, Patricia Gertrude Abruzzo.