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Long Island Estate Planning & Probate Blog

Wednesday, January 15, 2014

Beware of “Simple” Estate Plans

Beware of “Simple” Estate Plans

“I just need a simple will.”  It’s a phrase estate planning attorneys hear practically every other day.   From the client’s perspective, there’s no reason to do anything complicated, especially if it might lead to higher legal fees.  Unfortunately, what may appear to be a “simple” estate is all too often rife with complications that, if not addressed during the planning process, can create a nightmare for you and your heirs at some point in the future.   Such complications may include:

Probate - Probate is the court process whereby property is transferred after death to individuals named in a will or specified by law if there is no will. Probate can be expensive, public and time consuming.  A revocable living trust is a great alternative that allows your estate to be managed more efficiently, at a lower cost and with more privacy than probating a will.  A living trust can be more expensive to establish, but will avoid a complex probate proceeding. Even in states where probate is relatively simple, you may wish to set up a living trust to hold out of state property or for other reasons.

Minor Children - If you have minor children, you not only need to nominate a guardian, but you also need to set up a trust to hold property for those children. If both parents pass away, and the child does not have a trust, the child’s inheritance could be held by the court until he or she turns 18, at which time the entire inheritance may be given to the child. By setting up a trust, which doesn’t have to come into existence until you pass away, you are ensuring that any money left to your child can be used for educational and living expenses and can be administered by someone you trust.  You can also protect the inheritance you leave your beneficiaries from a future divorce as well as creditors.

Second Marriages - Couples in which one or both of the spouses have children from a prior relationship should carefully consider whether a “simple” will is adequate. All too often, spouses execute simple wills in which they leave everything to each other, and then divide the property among their children. After the first spouse passes away, the second spouse inherits everything. That spouse may later get remarried and leave everything he or she received to the new spouse or to his or her own children, thereby depriving the former spouse’s children of any inheritance.  Couples in such situations should establish a special marital trust to ensure children of both spouses will be provided for.

Taxes - Although in 2011 and 2012, federal estate taxes only apply to estates over $5 million for individuals and $10 million for couples, that doesn’t mean that anyone with an estate under that amount should forget about tax planning. Many states still impose a state estate tax that should be planned around. Also, in 2013 the estate tax laws are slated to change, possibly with a much lower exemption amount.

Incapacity Planning – Estate planning is not only about death planning.  What happens if you become disabled?  You need to have proper documents to enable someone you trust to manage your affairs if you become incapacitated.  There are a myriad of options that you need to be aware of when authorizing someone to make decisions on your behalf, whether for your medical care or your financial affairs.  If you don’t establish these important documents while you have capacity, your loved ones may have to go through an expensive and time-consuming guardianship or conservatorship proceeding to petition a judge to allow him or her to make decisions on your behalf.  

By failing to properly address potential obstacles, over the long term, a “simple” will can turn out to be incredibly costly.   An experienced estate planning attorney can provide valuable insight and offer effective mechanisms to ensure your wishes are carried out in the most efficient manner possible while providing protection and comfort for you and your loved ones for years to come.


Thursday, January 9, 2014

Can I Get In Trouble With the IRS for Trying to Reduce the Amount of Estate Tax That I Owe?

Can I Get In Trouble With the IRS for Trying to Reduce the Amount of Estate Tax That I Owe?

You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal, and state, taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.

It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. You may pass $5.25 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.25 million exemption to your own, you may have $10.5 million that you can pass tax free to non-spouse beneficiaries.

If your estate is still larger than these exemption amounts you should seek out a qualified estate planning attorney. There may be legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.

If you have taken steps to try to reduce the taxes owed, it is possible that the IRS may challenge the reported value or try to throw out the method you used. This does not mean that the executor/trustee will be in trouble; it just means that they will need to be prepared to support their position with the IRS and take it through an audit or even a tax court (or other appropriate court system). In the event of a challenge, a good attorney will be critical to ensure all of the necessary steps are taken.


Tuesday, November 19, 2013

The Pitfalls of Hiring a Bankruptcy Petition Preparer

The Pitfalls of Hiring a Bankruptcy Petition Preparer

It might sound counter-intuitive, but filing for personal bankruptcy is expensive. Besides paying attorney fees, a debtor must also pay the court costs associated with filing the bankruptcy petition and accompanying documents. Then there are the expenses associated with attending the mandatory pre- and post-filing consumer credit courses. So when presented with the opportunity to save a few bucks by hiring a bankruptcy petition preparer (BPP) to draft your bankruptcy petition and other required documents, you might wonder why you would pay an attorney to do the “same job”.

There are, in fact, several good reasons to retain an attorney to prepare your bankruptcy paperwork rather than hiring a BPP to do so. Or, presented another way, there are many potential pitfalls of hiring a BPP to do the job.

When Congress enacted broad amendments to the U.S. Bankruptcy Code in 2005, it also added new sections. Among them is Section 110, which established guidelines of required ethical behavior for BPPs and penalties for those who negligently or fraudulently prepare bankruptcy petitions. Under the Code, a BPP is a person other than an attorney or someone who works directly for a supervising lawyer, who prepares, for compensation, bankruptcy paperwork intended to be filed in a United States bankruptcy court.

One of the major drawbacks of hiring a BPP rather than a licensed bankruptcy attorney is that the BPP is prohibited from offering legal advice.  This means, for example, that if you have a question about how a specific aspect of the bankruptcy code might impact your case, only the lawyer is permitted to answer. The BPP is not.

Another pitfall to hiring a BPP is that they cannot even advise you which chapter of bankruptcy might best resolve your financial situation. That information is also considered legal advice, so only a lawyer can give you those directions.

Would you like to go to bankruptcy court with a lawyer or by yourself? If you hire a BPP, it’s likely you’ll be there alone because BPPs are not permitted to represent clients in court, although lawyers are. You might have read every book about filing personal bankruptcy before you hired a BPP to prepare your petition and other accompanying documents, but it’s not likely you or your BPP will know and adhere to the Local Rules in effect in your jurisdiction. Just what are Local Rules? They are guidelines established by each bankruptcy court that govern matters such as when a debtor’s paycheck stubs must be filed with the Court.

While hiring a bankruptcy petition preparer might save you money in the short term, it won’t offer you the opportunity to make the best possible decision nor the peace of mind that you will get from retaining a qualified, knowledgeable bankruptcy professional.


Tuesday, October 15, 2013

Can My Employer Enforce a Covenant Not to Compete?

Many employers require their employees to sign agreements which contain covenants not to compete with the company.  The enforceability of these restrictive provisions varies from state-to-state and depends on a variety of factors. A former employee who violates an enforceable non-compete agreement may be ordered to cease competitive activity and pay damages to the former employer.  In other covenants, the restrictions may be deemed too restrictive and an undue restraint of trade.

A covenant not to compete is a promise by an employee that he or she will not compete with his or her employer for a specified period of time and/or within a particular geographic location. It may be contained within an employment agreement, or may be a separate contract. Agreements which prevent employees from competing with the employer while employed are enforceable in every jurisdiction. However, agreements which affect an employee’s conduct after employment termination are subject to stricter requirements regarding “reasonableness,” and are generally disallowed in some states, such as California which has enacted statutes against such agreements except in very narrow circumstances.

Even in states where such covenants are enforceable, courts generally disfavor them because they are anti-competitive. Nevertheless, such agreements will be enforced if the former employer can demonstrate the following:
 

  • The employee received consideration at the time the agreement was signed;
  • The agreement protects the employers legitimate business interest; and
  • The agreement is reasonable to protect the employer, but not unduly burdensome to the employee who has a right to make a living.

Consideration

Under the principles of contract law, all agreements must be supported by consideration in order to be enforceable. The employee signing the covenant not to compete must receive something of value in exchange for making the promise. If the agreement is signed prior to employment, the employment itself constitutes consideration. If, however, the agreement is signed after employment commences, the employee must receive something else of value in exchange for the agreement to be enforceable.

Legitimate Business Interest

Legitimate business interests can include protecting and preserving confidential information (trade secrets) and customer relationships. Most states recognize an employer’s right to prevent an employee from taking advantage of information acquired or relationships developed as a result of the employment arrangement, in order to later compete against the employer.

Reasonableness

Based on the circumstances, a covenant must be reasonably necessary. If the covenant is overly broad, or unduly burdensome on the employee, the court may refuse to enforce the agreement. Therefore, the covenant must be reasonable in both duration and scope. If a covenant is overly broad, the court may narrow its scope or duration and enforce it accordingly. But if a covenant is so broad that is clearly was designed to prevent lawful competition, as opposed to protecting legitimate business interests, the court may strike down the agreement in its entirety.

To enforce a covenant not to compete, the employer can file a court action seeking an injunction against the employee’s continued violations of the agreement. The company can also seek monetary damages to cover losses resulting from the employee’s breach.


Thursday, September 5, 2013

Do You Need Meeting Minutes?

Regardless of the size of the business, corporations (including those organized under Subchapter S) must observe all of the required formalities in order to maximize the benefits of a corporation. Corporate meeting minutes document the decisions made by the company’s board of directors, and are necessary to preserve the “corporate veil” in the event of a lawsuit or other claim against the company. If corporate formalities are not observed, your own personal assets may be at risk.

One such formality is the maintenance of a corporate record book containing minutes of meetings conducted in accordance with the company’s bylaws. Even in a one-person corporation, board resolutions must be drafted, signed and kept in the corporate records. Every major decision that affects the life of the business must be ratified by a board resolution contained in the corporate records.

There is no specific required format for meeting minutes, but the document should include any important decision made regarding the company, its policies and operations. Minutes should include, at a minimum:

  • Date, time and location of the meeting
  • Names of all officers, directors and others in attendance
  • Brief description of issues discussed and actions taken
  • Record of how each person voted, whether the vote was unanimous and whether anyone abstained from voting
  • Vote and approval of the prior meeting’s minutes

How do you know whether a decision needs to be documented in the meeting minutes? Generally, if a transaction is within the scope of the company’s ordinary course of business, it need not be addressed in the minutes. On the other hand, major decisions should be documented in the minutes, such as:

  • Significant contracts
  • Leases
  • Loans
  • Marketing campaigns
  • Reorganizations and mergers
  • Employee benefit plans
  • Elections of directors or officers

Non-incorporated entities such as limited liability companies are generally exempt from performing such formalities.
 


Friday, August 30, 2013

How to Keep Your Affluent Children From Turning Into … Well, … Brats

Congratulations are in order—you have accumulated enough wealth to be concerned about eventually passing it along to your children and grandchildren in a manner that will encourage them to lead positive and productive lives.  Like many, your objective is to allow your children to enjoy the rewards of wealth without becoming irresponsible, overindulgent or feeling entitled to anything money can buy.

When it comes to sharing one’s wealth with adult children, there are some general principles that may help you guide your children as they shape their values.  Two quotes about sharing wealth with children are an excellent starting point:

I wanted my children to have “enough money so that they would feel they could do anything, but not so much that they could do nothing.” – Warren Buffett

“It’s better to give with warm hands than with cold ones.” – Unknown

Establish Inter Vivos Trusts for Your Children, And Use Restrictions Creatively

You can establish inter vivos trusts (trusts that go into effect during your lifetime) and appoint professional trustees during your lifetime.  Consider some combination of the following restrictions on the trust funds to help your children develop into competent, capable adults:

  • Make receipt of funds dependent on employment
  • Use trust funds to match income from employment
  • Prohibit distribution of trust earnings until the child reaches a certain age (it is not unheard of to distribute trust earnings to children once they reach age 65)
  • Make attaining a certain level of education a prerequisite to distribution of trust income
  • Consider establishing a charitable trust or family foundation, with room for employment of your adult child in the foundation’s management

Consider a generation-skipping trust, so that your wealth is shared directly with grandchildren

Make Gifts or Loans During Your Lifetime—And Not Just Gifts of Money

This is the meaning behind the quotation above regarding warm hands and cold ones.  It is better, in so many ways, to give gifts during your lifetime rather than after your death.  In addition to gifts, consider making strategic, interest-free loans to your children to help them achieve certain goals without losing a lot of their own income to interest payments:

  • Interest-free loans for higher education
  • Interest-free loans for private education for grandchildren
  • Interest-free loans for home purchases

In addition to giving gifts of money or making strategic loans, there are other “gifts” you can give your children to help them learn to live with wealth.  Consider the following suggestions,:

  • Hire a professional to teach your children how to manage their money, instead of banking on your children listening to your own lessons.
  • Pay for family vacations that serve a philanthropic purpose, such as travel to Africa to deliver medical equipment to a remote town or travel to South America to help clean a national park.
  • Begin or continue a family tradition of local volunteer work with disadvantaged people in your own community to ensure that your children get firsthand knowledge of how fortunate they are to have the resources your family has accrued.

In general, experts agree that families fare better when their wealth is used to enrich their lives and to help others less fortunate.  Give your children opportunities to learn to use money in responsible ways, from as early in their lives as possible.  Show them the difference between buying a new sports car and donating the same amount of money to a program that sends food to people in need.  That isn’t to say a new sports car shouldn’t be on the shopping list – but perhaps it shouldn’t be the only thing on the shopping list.


Wednesday, October 31, 2012

Preparing to Meet With an Estate Planning Attorney

A thorough and complete estate plan must take into account a significant amount of information about your assets, your family, your property, and your wishes during and after your life.  When you make your first appointment with an estate planning attorney, ask the attorney or the paralegal if they can provide a written list of important information and documents that you should bring to the meeting.  


Generally speaking, you should gather the following information before your first appointment with your estate planning lawyer.

Family Information
List the names, birth dates, death dates, and ages of all immediate family members, specifically current and former spouses, all children and stepchildren, and all grandchildren.

If you have any young or adult children with special needs, gather all information you have about their lifetime financial needs.

Property Information
For all real property you own or can reasonably expect to acquire, gather the property description, your ownership interest information, the address, market value, any outstanding mortgage balance, and the most recent tax assessment.

For any personal property of value (such as vehicles, jewelry, coins, antiques, stamps, and art), compile a list that includes a description, the physical location of each item, your ownership interest information, the market value, and any liens against the property.

Business Information
If you have an ownership interest in a business, make sure you have documents showing your ownership interest in the business, the business location, the names and contact information of other owners, and 2-3 years of past profit and loss statements.

Financial Information
Compile a list of all your financial accounts, including: checking accounts, savings accounts, investment accounts, stocks and bonds, and U.S. Treasury notes.  If any of these accounts currently have designated beneficiaries, bring that information as well.

Gather all retirement savings information, including 401(k) plans, 403(b) plans, IRAs, life insurance policies, Social Security statements, and pension information.  Make sure you have the account names, account numbers, current balances, outstanding loan balances, and currently named beneficiaries.

If any family members owe you debts, compile that information.

Questions to Think About
The following are some of the first questions your estate planning attorney will ask.  You are not required to have answers ready for all these questions, but because some of them are complex, it is a good idea to think through these issues before your appointment.

  • Who will be beneficiaries of your property?
  • Do you want to bequeath any specific items of property to specific individuals?
  • Is there anyone you do not want to be a beneficiary of any of your property?
  • Do you plan to make any bequests to any nonprofit organizations – university, church, charity, or other organization?
  • Do you know who you want to act as executor of your will?
  • Do you know who you want to act as trustee of any trusts you establish?
  • If you have minor children, who do you want to appoint as guardian?
  • Do you want to make arrangements for your health and financial well-being in the event you become unable to make decisions for yourself?
  • Do you have specific wishes for your funeral?
  • Are you a registered organ donor?

During your initial consultation, your estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy.
 


Tuesday, July 24, 2012

Overview of Life Estates in New York

Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.

Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.

Remainder Owner(s) automatically take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.

Advantages

  • Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
  • Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
  • Transferring title following your death is a simple, quick process.
  • Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
  • Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.
  • Property owned via a Life Estate is typically protected from Medicaid claims once 60 months have elapsed after the date of transfer into the Life Estate. After that five-year period, the property is protected against Medicaid liens to pay for end-of-life care.

Disadvantages

  • Medicaid; that 60-month waiting period referenced above also means that the Life Tenants are subject to a 60-month disqualification period for Medicaid purposes. This period begins on the date the property is transferred into the Life Estate.
  • Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
  • In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
  • Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax or Medicaid consequences.

 

Fred Cohen


Friday, July 20, 2012

You’ve Planned for Your Business, But Do You Have an Adequate Business Plan?

Much like the blueprints that help a contractor build a house, your business plan is an essential component of your start-up activities, helping you define where you want your business to be within a few years and how you plan to get there. Business plans can vary from simple, one-page documents to lengthy tomes.

Once created, your business plan is not set in stone. Your company will naturally evolve over time and be influenced by outside factors. As such, successful entrepreneurs consider their business plans to be a work-in-progress, to be updated to reflect changes in the marketplace. The important thing to remember is that a good plan includes only the information you need, nothing more and nothing less.

Some successful entrepreneurs have abandoned the old notion of lengthy business plans containing extraneous information. As the company evolves, much of a comprehensive document may become obsolete and have to be discarded. Or, worse, you might find yourself so invested in the plan itself that you resist changes that may be beneficial to the company. Instead, think of a business plan as the following four items:

  • A description of the business and leadership team
  • A well-defined target market
  • Competitive advantage(s) of your product or service
  • Three years of projected financial statements

When you are in the early stages, attempting to secure the first round of capital financing, investors are most concerned with the leadership team and what they are going to do. In later stages, the financial data takes on a more pivotal role. Care should be taken to focus on your target market and the overall concept, rather than getting bogged down in the details of a complicated business plan. Potential investors will be closely examining many areas of your business plan, including the team, target market, product or service you offer and financial projections.

Your Leadership Team
The best start-up business teams include a mix of varied strengths that complement each other. The individual who will be managing the business and developing the products or services offered are of the utmost importance.

The Target Market
Your business plan must describe the target market sufficiently to convince investors that you will have customers and that there is a need for whatever it is you have to sell. Be realistic, and include parameters such as the size of the market and the competition.

Competitive Advantage
What is your competitive advantage?  Is it something unique about the product or service your company offers?  And if you do have a killer concept, what prevents a competitor from copying it?  What is the barrier to entry? If the product or service itself is not unique, be sure to demonstrate how you intend on marketing it in a way that sets it apart from the competition.  

Financial Projections
Provide a reasonable estimation of what your profit and loss will be over the course of the first few years of business operations. Of course, this estimate is subject to change, but it will provide some guidelines to let investors, and your leadership team, know what milestones you expect to meet along the way.

Above all, make sure you demonstrate to potential investors that you have carefully and realistically thought through your business plan, and that you are prepared to make changes along the way when adjustments are necessary.

 

 


Monday, March 5, 2012

Should I Incorporate My Business?

The primary advantages of operating as a corporation are liability protection and potential tax savings. Like any important decision, choosing whether to incorporate involves weighing the pros and cons of the various business structures and should only be done after careful research.

Once incorporated, the business becomes a separate legal entity, and assets of the corporation are separated from the owner’s personal finances. As a result, the owner’s personal assets generally can be shielded from creditors of the business.


Read more . . .


Saturday, February 18, 2012

Coordinating Property Ownership and Your Estate Plan

When planning your estate, you must consider how you hold title to your real and personal property. The title and your designated beneficiaries will control how your real estate, bank accounts, retirement accounts, vehicles and investments are distributed upon your death, regardless of whether there is a will or trust in place and potentially with a result that you never intended.

One of the most important steps in establishing your estate plan is transferring title to your assets. If you have created a living trust, it is absolutely useless if you fail to transfer the title on your accounts, real estate or other property into the trust. Unless the assets are formally transferred into your living trust, they will not be subject to the terms of the trust and will be subject to probate.


Read more . . .




The attorneys at the Law Offices of Fred J. Cohen & Associates assist clients with Estate Planning, Probate and Estate Administration. They serve clients in the Greater New York area including Brooklyn, Queens, Bronx, Long Island, Nassau, Suffolk, Great Neck, Manhasset, Roslyn and New Hyde Park.



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