March 2012 Newsletter

Welcome Back

Schanker and Hochberg P.C. is an Estate Planning law firm. We offer legal services for simple Will planning, sophisticated Estate and Gift Tax planning, Decedent Estate Administration and Probate services, Business Succession Planning, Charitable Giving, Special Needs Planning for persons with disabilities, 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.

Trusts and Trustees

The trust instrument is the most common planning method for transferring inheritance to the next generation(s). Trusts provide a mechanism of control and require obligations of loyalty and due diligence to their beneficiaries. One of the most difficult decisions our clients must make is who to name as Trustee(s).

Well thought out Estate Plans avoid complications added to the grief of losing a loved one, and this requires close attention to decisions such as who manages the estate, and when and how distributions should be made.

An individual can certainly serve as Trustee or Co-Trustee — this person should be responsible, reliable, honest, and someone you trust to manage the Trust's investments and administer its formal requirements. Communicate clearly with the person you designate so they understand the Trust's purpose and how to exercise discretionary powers, and be aware that they are also personally liable for any intentional mismanagement or abuse of power while acting as Trustee.

Clients often consider naming a Corporate (Bank) Trustee as a primary Trustee, Co-Trustee, or successor Trustee. Corporate Trustees offer objectivity, continuity, expertise, and fiduciary strength — a professional distance that keeps emotional or "family" dynamics from influencing discretionary distribution decisions. They cannot get sick, become incapacitated, or die, and if partnered with an individual Trustee (or under terms giving beneficiaries the power), that institution can be removed and replaced. Corporate Trustees are also experts at administrative requirements like preparing and filing timely tax returns, and they operate under institutional policies subject to regulatory examination and maintain liability insurance. You can certainly partner a Corporate Trustee with a trusted individual Trustee.

When you plan your Will or Trust, always be careful whom you choose as Trustee, and review your decisions every year or few years to make sure they remain appropriate.

Flexibility with Irrevocable Trusts

Irrevocable Trusts can be extremely useful in the estate planning process. Family or "bypass" trusts are often used to shield assets from estate taxation, insurance trusts allow life insurance to pass to heirs free of taxes, and dynasty, or "generation-skipping," Trusts can help several generations of beneficiaries obtain financial freedom.

Individuals are often apprehensive about entering an irrevocable arrangement, worrying that circumstances may change over time. In fact, a well-drafted trust can take changed circumstances into account and provide a surprising degree of flexibility:

First, trustees can be given the ability to "sprinkle and spray" distributions among a class of beneficiaries based on who is most in need at the time, readjusting as circumstances change.

Second, ages set for distribution don't have to be strictly adhered to. A trust might provide for distributions at 35, 40, and 45 to acclimate beneficiaries to assets gradually and guard against dissipation, but a trustee can be granted discretion to make distributions earlier for support, health, or education.

Third, a trustee can be given the ability to continue withholding distributions if a beneficiary faces serious financial or matrimonial difficulty, or a drug or alcohol abuse problem, protecting assets from being squandered and giving the beneficiary a chance for a fresh start.

Fourth, a beneficiary can be given a power of appointment to direct assets among a class you've named (typically children and grandchildren) as they see fit — a surviving spouse, for example, can direct trust assets to one child over others as they deem advisable upon death.

Fifth, Trusts can include the power for a Trustee to change who the acting Co-Trustee is, and beneficiaries can also be given the power to change a Trustee if dissatisfied — often relevant when a Corporate Trustee is involved and beneficiaries wish to switch institutions.

Lastly, the New York State Legislature has enacted a law giving a trustee of an irrevocable trust greater leeway to change its terms without court permission, including creating a special needs trust for handicapped beneficiaries, changing distribution ages under certain circumstances, and changing the governing law of the trust.

As you can see, irrevocable trusts can be of tremendous use while remaining flexible enough to adapt to changing circumstances. It is never too soon to learn what options are available.

The Aging Population

Benjamin Franklin said that nothing is certain but death and taxes. Also true is that as we age, we are likely to require some form of prolonged care, possibly at a higher level, whether from a home aide or in a nursing facility, and the costs can be astronomical. These costs are typically covered through Long-Term Care Insurance, out-of-pocket payment, or Medicaid.

Medicaid is a welfare program, not an entitlement, commonly referred to as the "payer of last resort," with rigid and strict eligibility. It is imperative to give consideration to Long-Term Care Insurance to provide leverage, if not full coverage, for the costs of care. It is never too soon to become educated about the options available.

I Have an Estate Plan; Now What? Top Tips to Maintain Your Planning

1. Make sure someone other than yourself (and your significant other) knows who to contact first. Most clients keep their original, signed Wills in our Will safes; if Probate is necessary, the original must be produced, and your Executor and/or Trustee should know who your Estate Planning attorney is.
2. Keep a "critical information" list, including contact information for your Estate Planning attorney, accountant, financial advisor, and life insurance advisor, along with a list of your accounts, any safe deposit box, and any accounts you manage online, plus who to contact about selling art, antiques, or collectibles.
3. Schedule a Family Meeting to discuss responsibilities with your Estate Planning attorney, your family, and those you've appointed as fiduciaries.
4. Review your Estate Plan regularly — we offer complimentary annual review meetings to ensure your decisions remain current.
5. Consider writing a Letter of Intent to be kept with your original Will, directing where specific personal items should go.
6. Discuss your intentions with anyone you name as Trustee, so they understand how you wish any discretionary power to be applied.
7. Discuss your medical preferences with your Health Care Agent, and make sure they know who your primary care physician is.

Estate Tax Update

The New York State Estate Tax Exemption remains $1 million per person, and the New Jersey Estate Tax Exemption remains $675,000 per person. The Federal Estate Tax, Gift, and Generation-Skipping Tax Exemptions were $5,120,000 per person (increased due to inflation indexing), and were scheduled to revert to $1,000,000 on January 1, 2013 unless Congress passed new legislation — uncertain, given that 2012 was also an election year.

Portability is not, by itself, an effective Estate Tax Planning strategy. Portability, a provision under the 2010 Tax Act, allows a surviving spouse to add any unused portion of their late spouse's Federal Estate Tax Exemption to their own, but provides no asset protection for the exempt amount transferred and does not shelter appreciation in the surviving spouse's taxable estate. An Estate Tax return must be filed with the IRS to use Portability. Before relying on it as a planning method, it is imperative to evaluate tax planning with an Estate Planning professional.

Gifting Opportunities

The lifetime gift tax exemption of $5,120,000 per person made this an opportune time to make large gifts, whether front-loading large life insurance policies or partnering with the historically low Applicable Federal Rate to maximize the use of Grantor Retained Annuity Trusts (GRATs).

Popular gifting techniques exceeding the annual $13,000 gift tax inclusion included Irrevocable Gift Trusts, gifting limited partnership interests in a Family Limited Partnership, GRATs, and Qualified Personal Residence Trusts (QPRTs). Lifetime gifting reduces the taxable estate and removes future appreciation on the asset, and there are methods allowing the Grantor to retain some element of management or enjoyment after the gift (Family Limited Partnership, GRAT, QPRT).

For those charitably inclined, a Charitable Remainder Trust can be an excellent tool to reduce the size of the taxable estate, retain an annuity interest, and fulfill charitable objectives. Time was running out until the end of 2012 to take advantage of these lifetime gifting strategies.

Extensive Services at Schanker and Hochberg P.C.

1. Complimentary Initial Consultations for Estate Planning, Probate, and Estate Administration matters
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 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, a Trustee and member of the Huntington Lawyers' Club, and a member of the Suffolk County Bar Association, the New York State Bar Association, and the American Bar Association.

Ms. Schanker joined Schanker and Hochberg P.C. in 2004, specializing in Estate Planning, Estate Administration, and Elder Law. 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, who was welcomed into the world in November 2011. Andrea has returned to Schanker and Hochberg on a full-time basis.

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.