August 2016 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 40 years of experience in counseling clients for their Estate Planning needs.

Cover Your Ass-ets!

The fable master Aesop is rumored to have said, "It is thrifty to prepare today for the wants of tomorrow."

Indeed, his advice holds true about saving money and acting conservatively with your funds; however, what if the "wants of tomorrow" are not your own wants, but rather the wants of a creditor? Again, Aesop's advice holds true — it is thrifty to prepare today for the creditors who may be knocking on the door tomorrow.

But how to prepare? Of course, there are outer limits on how much preparation you can do. One such limit is the Fraudulent Conveyance Rule, which renders invalid any transfer of assets made with intent to defraud creditors. Barring that, however, there are a variety of ways to structure your assets to provide a greater degree of creditor protection.

The creditor protection afforded to different asset types is largely a creature of state law. In New York, for instance, life insurance — both the cash value and proceeds — is protected in the hands of the beneficiary from the creditors of both the owner and the insured. If your spouse is the insured, the protection extends further, protecting the cash value and proceeds from the creditors of the owner, insured, and beneficiary. If your spouse is not the insured, creditor protection can be increased by using an Irrevocable Life Insurance Trust as owner and beneficiary of the policy — a wise move to protect proceeds from the creditors (or "predators," such as a potential ex-spouse) of the beneficiary.

Annuities are also afforded greater creditor protection than bank accounts or cash. Under New York law, a beneficiary's interest in an annuity is not subject to a creditor's claims unless a court so orders. While not quite as "bulletproof" as life insurance, annuities still enjoy substantial protection.

For other assets, such as real property, creditor protection under New York law is rather low. However, various estate planning techniques can protect these assets, such as an Irrevocable Trust (a Qualified Personal Residence Trust, a Gift-Giving Trust, or, in certain states, a Self-Settled Trust). These Trusts can afford greater protection from both your creditors and those of the ultimate beneficiary.

Another technique is creating a business entity, such as a Limited Liability Company or Corporation, to own property — a layer of asset protection particularly appropriate for those who own rental property.

Schanker and Hochberg, P.C. is highly adept at creating estate plans and asset protection strategies to increase creditor protection. If this sort of planning would suit your needs, or you work in a "high risk" profession, contact us to discuss preparing today for the wants of creditors tomorrow.

Extensive Services at Schanker and Hochberg P.C.

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

Joint Revocable Living Trusts; Watch Out!

We continue to meet with clients to review Estate Plans prepared elsewhere that include a "Joint Revocable Living Trust." Joint Revocable Living Trusts are very troubling, and it is our strong recommendation that married couples create separate Revocable Living Trusts.

Generally, a Revocable Living Trust is a Will substitute directing distribution of assets and management of the Estate at the time of death. The huge advantage of a Revocable Living Trust over a Will is that Probate can be avoided, along with the associated frustration, delays, and significant expense. Joint Revocable Living Trusts are attractive from a selling-point perspective — one document for two people — but a closer look reveals how complicated and frustrating they can be.

Joint Revocable Living Trusts are attractive in "Community Property States" (California, Texas, Arizona, Idaho, Louisiana, New Mexico, Washington, Wisconsin, Nevada, and Alaska), where assets in the Trust retain their "Community Property" status and thus enjoy a full step-up in cost basis for Federal Capital Gains Tax purposes on both the first and second death.

New York, New Jersey, Florida, and the majority of other states are not Community Property States, so this tax advantage does not apply. Indeed, Joint Revocable Living Trusts have significant disadvantages:

1. The Joint Revocable Living Trust becomes Irrevocable after the first spouse dies. If circumstances change and affect the surviving spouse's plan for Estate management or distribution of assets, he or she faces significant red tape (and expense) to terminate the Trust and implement a new plan. Separate Trusts allow for easy amendments.
2. There is increased exposure to creditors with a Joint Trust. If either spouse is sued, all assets in the Trust are vulnerable — not the case with separate Trusts.
3. Estate Tax planning within a Joint Revocable Living Trust is very complicated. It is harder to attribute assets to the deceased spouse for purposes of funding a Credit Shelter Trust and preserving an unused Estate Tax Exemption at the time of the first death. Separate Trusts make allocating assets for this purpose far easier.

Many attorneys in "Separate Property" States, such as New York, still use these Trusts, but there is really no advantage to using them unless you are in a Community Property State. It is important to separate these Trusts prior to the incompetency or death of either spouse if you live in a separate property state such as New York, New Jersey, or Florida.

Shorts

Andrea B. Schanker, Esq., was installed as the President of the Huntington Lawyers' Club in June 2016. The Huntington Lawyers' Club is a private lawyers' club dating back to 1934, holding monthly meetings (except in August) at local venues in Huntington, with a guest speaker at each. Guests and Sponsors are welcome.

Andrea and her husband, Michael Abruzzo, welcomed their second daughter, Sylvia Grace, into the world on February 23, 2016 — grandchild number two for Partner Steve Schanker, Esq., who was also excited to welcome grandchild number three that August from his youngest daughter, Blaire Byron, and her husband, Jason Byron.

What Is Elder Law?

Elder Law is a particular specialty focused on the needs of the aging population. It encompasses general Estate Planning needs (Wills, Trusts, Powers of Attorney, and Health Care Directives), but also requires collaboration with strategies to qualify for Medicaid, continued Medicaid benefits, asset protection and preservation, disability planning, conservatorship and guardianship proceedings, long-term care placements in nursing homes or assisted living communities, retirement planning, and other issues specific to the aging population.

If you have an Elder Law issue, or think you may have one, you should only entrust this planning to an experienced Elder Law Attorney. Not all Estate Planning attorneys have Elder Law experience, and it is important to have an attorney with both legal and human experience of the process, since the legal answer alone may not address the practical, human side of the issue.

It is important to be prepared for your initial Elder Law consultation. You should bring, or provide ahead of time:

• Copies of any existing Estate Planning documents
• An asset inventory specifying the type of asset, its value, and title
• Copy of any deeds to real estate
• A copy of a recent income tax return
• Information about health insurance and long-term care insurance

At the initial consultation, your needs and objectives will be discussed and evaluated alongside this documentation, and a detailed summary letter (also serving as a proposed retainer agreement) will follow. Schanker and Hochberg P.C. requires a reasonable consultation fee for these services, as real strategies are developed directly at this initial meeting.

An Elder Law attorney deals with clients at one of the most vulnerable times of their lives, and is often a trusted advisor thereafter. Schanker and Hochberg P.C. prides itself not only on legal expertise but on the ability to comfort our clients and accommodate their practical needs.

Travel and the Not-So-Powerful Power of Attorney

In our last newsletter, we wrote about inter-jurisdictional issues that may arise with living wills and health care proxies. Much like those documents, a power of attorney is a critical lifetime document, authorizing another person to act on your behalf in the event of incapacity — not to make medical decisions, but to engage in activities such as paying bills, dealing with government agencies, and managing your personal, legal, or financial affairs.

What happens if you become incapacitated or comatose while traveling in a different state or foreign land? Will your directives and appointments, validly made in your home state, be honored wherever you travel, or will the foreign jurisdiction require a costly and arduous guardianship proceeding?

Unlike the issue with living wills and health care proxies, there is a uniform act governing powers of attorney. The Uniform Power of Attorney Act, adopted by 21 states, recognizes out-of-state powers of attorney so long as the power was validly executed in either the jurisdiction specified on the power or the jurisdiction of execution.

However, 29 states plus the District of Columbia lack absolute uniformity. The five most populous states — California, Texas, Florida, New York, and Illinois — have not adopted the Uniform Act, so a large share of the population remains outside the realm of uniformity. Fortunately, most remaining states, including these five, have some provision for reciprocity. New York, for example, despite its "statutory" power of attorney, will recognize a power of attorney from another jurisdiction so long as it was executed in compliance with the law of that state or the law of New York. Similar provisions exist in California and Illinois. Florida also recognizes out-of-state powers of attorney, but does not require financial institutions to accept one unless accompanied by an "opinion of counsel" as to its validity.

A few states, such as New Jersey, lack clear statutory authorization for recognizing out-of-state powers of attorney. Because many states, like New York and Texas, have their own "statutory" power of attorney, there is also a risk that an out-of-state power will not be accepted within a jurisdiction simply because it is not that jurisdiction's own statutory form.

States with the Uniform Power of Attorney Act include: Alabama, Arkansas, Colorado, Connecticut, Hawaii, Idaho, Iowa, Maine, Maryland, Montana, Nebraska, Nevada, New Mexico, Ohio, Pennsylvania, South Carolina, Utah, Virginia, Washington, Wisconsin, and West Virginia.

Foresight can help avoid a potentially costly situation for you and your family in the event you become incapacitated while traveling in another jurisdiction. If you spend regular, recurring, or otherwise significant time elsewhere, contact us to discuss planning to ensure your power of attorney is honored no matter where you may be.

NJ Enacts the Uniform Trust Code

New Jersey recently enacted the Uniform Trust Code (UTC), effective July 17, 2016. The UTC applies to all Trusts — existing and new — and provides much greater flexibility for Trust planning than New Jersey's prior laws. This is a good time for New Jersey residents to revisit their existing planning and determine if changes previously unavailable are now appropriate.

Some highlights of the UTC include:

• The UTC allows for "secret" Trusts, meaning you can keep the existence of a Trust from your beneficiaries until the beneficiary turns 35. Even then, the Trustee doesn't have to proactively inform the beneficiary of the Trust's terms unless approached directly.
• You can modify an Irrevocable Trust without a court proceeding, similar to New York's decanting statute — helpful when a beneficiary's circumstances change in ways not anticipated when the Irrevocable Trust was created.
• Supplemental Needs Trusts (for individuals with disabilities) are clarified, and creditor protections for these Trusts are strengthened.

These are just a few of the UTC's offerings; overall, it provides much greater flexibility regarding the administration and management of Trusts.

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.

Highlighted S&H Attorney: Steven Schanker, Esq. (Partner)

Steven Schanker received a Bachelor of Arts degree from the University of Rochester and his Juris Doctor from St. John's University School of Law. He is admitted to practice before the Courts of the State of New York, the Eastern and Southern Districts of the U.S. District Courts, and the Supreme Court of the United States.

Mr. Schanker is an accomplished public speaker and has lectured before both lay and professional audiences nationally. He has been retained by several large financial institutions, including life insurance companies and stock brokerage firms, and is an active member of the Society of Chartered Life Underwriters Speakers Bureau and the Estate Tax Planning Council of Long Island, among other affiliations, and a quoted author, including articles in Forbes and Fortune magazines.

The primary office of Schanker and Hochberg P.C. is in Huntington Village, in a restored, turn-of-the-last-century Victorian home. R. Mark Hochberg, Esq. and Steve Schanker have been partners for thirty years. Steve's older daughter, Andrea B. Schanker, Esq., is a Partner in the firm. Mr. Schanker resides in Huntington with his wife, Carol, an accomplished artist, and is a very proud grandfather.

GENERAL DISCLAIMER: While we hope this newsletter provides useful information, please know that this newsletter does not predict or guarantee the outcome or result in any particular situation, and no attorney-client relationship exists or is established as a result of this newsletter or its receipt.