November 2010 Archives

According to Bloomberg, the federal taxes on estates are expected to increase the most among all levies as tax breaks end on January 1. New York estates worth over $1 million at death will be subject to a 55 percent estate tax. President Barack Obama and other members of Congress are still debating whether they will keep the income-tax reductions for the more affluent.

Many financial analysts said the government may implement a new tax on multimillion dollar estates to preserve some of former President George W. Bush's tax cuts. Some Congress members seem to support a top rate of 45 percent that would be applied after a $3.5 million tax-free allowance. Even so, a general extension for tax cuts appears to be a diminishing likelihood for many who have been hopeful for that option.

The Associated Press reported the estate of Marcelo Lucero filed a civil rights lawsuit on Monday in Brooklyn's U.S. District Court against the county, municipal governments, and several Brooklyn police officials. The $40 million suit claims police and political inaction contributed to the 2008 attack on Lucero by a crowd of teens who often directs their bias against Hispanics.

Marcelo Lucero, a 37-year-old Ecuadorean immigrant, was walking with a friend along the Patchogue Long Island Rail Road station around midnight when seven teenagers confronted them. A fight followed, and the teens allegedly yelled ethnic slurs at Lucero and his friend. One teen eventually stabbed Lucero's chest and killed him.

In an earlier post, we discussed the option of preparing special needs trusts for loved ones who had a disability. However, single individuals or couples who share an estate and do not have any children may face the issue of how to prepare for a disability. In the event that you become disabled, The Times Herald-Record provides some helpful advice to consider.

You may generally file a guardianship proceeding in court and ask to designate a legal guardian to handle your personal affairs if you become disabled. The guardianship process may entail significant costs and involve the court probing into your personal affairs. You may also lose your ability to decide in advance whom you would like to manage your affairs during a disability.

Edith Schlain Windsor filed a lawsuit in Manhattan federal court after her spouse Thea Clara Spyer died in 2009. Windsor contested the Internal Revenue Service’s decision, which asked her to pay over $350,000 in estate taxes, and argued that a married heterosexual couple would not have faced the same tax.

The lawsuit, supported by gay-rights advocates, challenges a federal law established in 1996 that says marriage is solely between a man and a woman. Edith Windsor and Thea Spyer were legally married in Canada in 2007 and have been together for over 40 years, according to The Wall Street Journal. Although their marriage was recognized in the state of New York, the lawsuit said it was not acknowledged by the U.S. government.

Congress will be discussing its plans on reissuing estate and income taxes next week, according to The New York Times. After the estate tax lapse this year, legislators have five weeks to act on it before the holiday break. Many NY estate planning lawyers have been speculating on how the return of the estate tax will affect their clients’ assets but have not yet reached any definite conclusions.

The estate tax will slip back to the 55 percent tax rate for individual estates more than $1 million, just as in 2001, if Congress does not act. Tax Policy Center, a Washington research group, said around 44,000 will have to pay taxes while 108,000 estates would have to file return under the lower exemption. In 2009, there were 5,500 who owed taxes and 15,000 estate tax returns.

Witnessing the deterioration of a loved one’s health can be difficult, but establishing a power of attorney can help make life-decisions easier for everyone involved. A power of attorney is a written document where the principal (the person setting up the document) grants certain authority to another person (the agent or attorney in fact) to act on the principal’s behalf.

A power of attorney can be as broad or specific as the person wants. However, healthcare and finances are two significant areas where you definitely need set up a power of attorney. Designating someone to make medical decisions for you in the event of an emergency is established through a power of attorney for healthcare. This person can make be able to make decisions not covered in your healthcare directive, such as:

This year’s estate tax break has created problems for charities that rely on essential lifetime gifts and donations. According to the New York Times, the executors of some estates are becoming more reluctant to transfer bequests until next year. Other estate planners say litigation or negotiations on planned gifts from those who died and did not update their wills prevent them from handing the gifts over.

The question as to whether Congress will extend the estate tax cuts has complicated and caused costly issues for donors who created charitable remainder trusts through their wills in the event that they pass away. With charitable trusts, the donor typically receives tax-favored income for life, and whatever is left in the trust is given to charity.

A case was brought to the U.S. Court of Appeals in New York concerning whether some insurance providers can profit from investing and maintaining the proceeds of insurance policies distributed under employee-benefit plans. According to Bloomberg, a three-judge appellate panel must decide if New York-based life insurer MetLife owes a fiduciary duty to the recipients of retained asset accounts.

Bloomberg Markets magazine reported MetLife Inc. is one out of many U.S. insurers earning investment income on $28 billion owed to life insurance beneficiaries. Insurance carriers keep the money in so-called retained asset accounts and only pay the recipients when they review the account or write any drafts. Many beneficiaries claim they are entitled to the full amount that insurers make when they invest the retained assets.

According to the New York Times, New York estate planning lawyers and advisers have avoided the debate on special needs trusts. These trusts supplement the benefits the government provides to disabled individuals and helps pay for additional equipment and services that are not covered.

Many wealthy families will leave money for a beneficiary without realizing they might prevent the recipient from access to several government need-based benefits. To make sure a disabled individual receives the right benefits, New Yorkers can choose between two common kinds of special-needs trusts:

• The Omnibus Budget Reconciliation Act of 1993 (OBRA), or
• The third party trust.

The New York Times reported many parents are still hesitant to talk about the amount of money they plan to leave their children, which estate advisors and psychologists believe can cause conflict among siblings. Among the worst situations is when parents knew one child was more or less financially successful than the other.

In those kinds of cases, estates can turn into arguments about love or the lack of it from parents amidst other emotions that parents may not have wanted to arise after their death. NYC psychoanalyst Eric Dammann said parents "will set up this whole estate plan" but fail to discuss it with their kids, which can often lead to a complete surprise for the children after a will has been read.

In 2010, five billionaires have passed away during a period where there is currently no federal estate tax. Forbes reported Investment News has pulled together a slide show that reveals what these once prosperous individuals would have owed had the federal estate tax been in place.

The slide show first states that "the families of the departed would have owed the U.S. government [a total of] $8.7 billion in estate taxes." That's an incredibly large amount of taxes for any NY estate planning attorney to see. By applying the 2009 tax rate of 45 percent, each billionaire's estimated estate tax breaks down as follows:

Trust and estate advisors are dealing with more and more stubborn and disgruntled heirs, according to The Wall Street Journal. Besides inheriting money, some "trust-fund babies" hold on to a sense of entitlement and believe they can abuse and mistreat an advisor or a trustee. This kind of conduct may result in pricey legal fees and spoiled relationships between beneficiaries and their trustee.

A New York estate planning attorney can probably attest to a trustee having been ill-treated by an heir or general client but can also understand the difficulty clients may have in picking the right trustee. Some say the upsurge of rude behavior may stem from frustration in hard economic times and many people might just be worrying about their investments decreasing.