Schanker and Hochberg P.C. is a full-service 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, www.schankerhochberg.com, 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. This 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.
As always, we encourage feedback from our readers. If there are any topics you wish for us to specifically address or elaborate on, please email me at: firstname.lastname@example.org.
Gift Now or Forever Hold Your Peace
Unless Congress takes action before January 1, 2013, the Federal Estate Tax, Generation Skipping Tax, and Lifetime Gift Exemptions are going to be drastically reduced from their current threshold of $5,120,000 to $1,000,000 (the details are a little different for the Generation Skipping Tax Exemption but this Newsletter will not address this issue). Now is a critical time to seriously evaluate making a large lifetime gift.
Large lifetime gifts should first be made using assets that are likely to substantially increase in value. This is because the gift will not only reduce the value of the taxable estate by the value of what was gifted but the transfer also removes appreciation from accumulating inside the taxable Estate. The object of this kind of Estate Planning technique is to strategically transfer valuable assets so that your quality of life remains intact and you preserve as much as possible from the inevitable Estate Taxation.
These gifts can include all or part of a family business, investments, and/or real estate.
How do I make a gift?
Lifetime gifts can be made by using various Trusts or by creating Family Limited Partnerships or Limited Liability Companies (LLCs). There are sophisticated methods involved so that the gift giver (called the “donor”) can even retain limited control over the asset(s).
A few examples of methods of sophisticated gifting techniques are as follows:
1. Grantor Retained Annuity Trust (a “GRAT”):
The Grantor (person who creates the Trust) makes a gift of assets that can generate income and have appreciation
potential to the GRAT while retaining an annuity (income) interest for a term of years. At the end of the term, the Trust balance goes to the designated beneficiary (outright or in Trust). Essentially this technique works by potentially giving away a valuable asset, retaining an annuity interest, and removing appreciation. There is an IRS proscribed formula to calculate the value of the gift made, if any, and the value of the annuity that the Grantor takes back for the term of the Trust. The IRS assigns a fixed interest rate (fluctuating monthly) to use in this formula. For July 2012 that interest rate is 1.2% which is nearly a record low. A GRAT is most attractive when this rate is low and there are valuable assets with appreciation potential available to gift.
2. Family Limited Partnerships/Limited Liability Companies:
The Partnership exists between family members with the Donors as General Partners having the managing controlling interests and the beneficiaries or Limited Partners having ownership but no control. For this reason, the gift of Partnership interests to the Limited Partners can be at a discount for gift tax purposes. The Donor(s) can significantly reduce Estate Tax liability, maintain control over the Partnership’s assets, and protect those assets from creditors. Depending on what the Partnership owns, the General Partners may be entitled to management fees.
3. Life Insurance:
Planning with Life Insurance should be a consideration as well. The life insurance policy should be purchased inside of an Irrevocable Trust and then the Trust can be front loaded to pay a significant portion of the premium using the increased lifetime gift tax exclusion.
Gift Now or Forever Hold Your Peace (…cont’d)
New York and New Jersey do not have a gift tax but both States have a State Estate Tax (New York has an exemption of $1 million and New Jersey’s exemption is $675,000). Maximizing on gifting opportunities in this limited time period with the increased gift tax exemption will generate large savings on the State Estate Tax level.
There is significant work that goes into the process of making a lifetime gift. The transaction has to be well thought out. Once the decision is made to proceed, an appraised value of the “gift” must be formalized. The required documentation must be drafted and executed and then a gift tax return must be prepared and filed with the Internal Revenue Service.
This is sophisticated planning and there are many of options depending on what kind of assets we have to work with, how much is being gifted, who the gift is being made to, and how the beneficiaries should receive the gift.
Please contact Schanker and Hochberg P.C. to arrange a complimentary consultation to determine if this is appropriate for you.
The Estate Planning “Dear John”
Consider the following letter. This letter is a recitation of specific wishes and intentions you may have for the person(s) designated as a fiduciary in your Estate Plan. This is not a legal document. It should be kept with your original Last Will and Testament and you should always have a discussion with your Executor/Trustee(s) during your lifetime.
As you know from our previous, detailed discussions about my Estate Planning, I have designated you to manage the settlement of my Estate under the specifications of my Last Will and Testament and/or Trust(s). Now that you have the original, executed documentation (because I told you where to find it while I was alive), you should rest assured that you will be in very capable hands using my Attorney (Schanker and Hochberg P.C.) should you decide to do so. They can assist you in all administrative requirements.
I have completed a “Critical Information” worksheet which Schanker and Hochberg P.C. has on their website which will show a list of assets (current as to the date __/__/__) so that you can locate and identify all of my accounts, real estate, investments, insurance policies, and important personal property (the Rolex watch collection and my fine art collection for example). This worksheet also includes a list of any digital assets (online accounts) I have maintained and my debts such as credit cards and mortgages.
This letter is also my memorandum of personal wishes about how household and personal items should be distributed. I am also writing about that special hiding spot in the basement I have where I have placed documents, family recipes, etc. [use this letter to give personal guidance to the Executor/Trustee]
TO MY TRUSTEE, you will see that I have set up a Trust for the benefit of my children that gives you certain discretion to release money to my children even if they are not entitled to a payout. [use this letter to specify how this discretion should be applied].
Thank you for agreeing to serve in this very important capacity for me and my family. I hope that this letter makes your job just a little easier.
Safekeeping of Documents
The preparation of estate planning documents is an important step in leaving your assets in the manner that you desire, as well as minimizing taxes and other costs. Once these documents are prepared, however, clients often wonder where they should be kept and whether or not copies should be distributed to family members.
The most important original document that needs to be safeguarded is your Last Will and Testament (the “Will”). This is because it is the original that must be probated if there are assets in your own name alone at the time of your death.
People often think that it is wise to store the original Will in a safe deposit box, but this is inadvisable. A safe deposit box will be sealed when a bank is notified that its owner has died. Your named executor will need to obtain a court order to open the box for the Will to be retrieved.
It is for these reasons that we invariably recommend that the original Will be left with us. We will hold it for safekeeping. Of course, it is important for other family members, especially whoever you have named as the executor, to know that we have the original.
What should you do with the originals of your Trusts, such as Revocable Living Trusts and Life Insurance Trusts? When we prepare these trusts, we make multiple copies and suggest that you keep one and give the others to those individuals whom you have named as the trustees. These are the people who will be called upon to administer the trusts in accordance with their terms and they should be in possession of these important documents.
We also make multiple copies of your Powers of Attorney, with the suggestion that you give at least one copy to your agent who is named to make financial decisions for you if you are unable to make them on your own. It does not do the agent any good if he she is named as such but does not have access to the Power of Attorney. Often, an original of this document must be left with a financial institution, so it is particularly important that your agent have access to multiple copies.
Lastly, what should be done with your Living Will and Health Care Declarations? Here, it is important that not only your agent, but also your personal physician has a copy of this document and clearly knows what your directions are towards health care if you are unable to make health care decisions on your own. Similarly, it is important that your physician knows that you have a Living Will and that you do not want to be kept alive by artificial means.
Safeguarding important documents is as crucial a step as any other in assuring that your intentions are carried out as planned.
The Aging Population: Planning for Long Term Care
The cost of prolonged health care for the aging population is most commonly paid for in one (or more) of following ways; (1) Medicare insurance (2) Medicaid assistance (3) Long Term Care insurance, (4) Veterans’ Benefits and (5) private, out-of-pocket expense. Planning
in advance is important. There is a fundamental misconception about Medicaid, who is eligible, and how it works. There is also a negative stigma about Long Term Care insurance; that it is too expensive and chances are “not worth the investment.” Together, this causes a paralysis and most of the time planning for the cost of prolonged health care is delayed until the very last minute which is when the fewest options are available to the person who needs the most comfort, security, and care.
Medicaid is a financial, needs based, joint Federal and State program that provides health care coverage for prescription drugs, home care, nursing home care, hospital care, and physician services. To be eligible for Medicaid an individual must meet stringent income and resource thresholds. There are strict transfer rules and even stricter administration requirements when qualifying and remaining qualified for Medicaid benefits. Medicaid should absolutely not be considered a default method of providing prolonged health care coverage for the general population. Rules are complex and vary from State to State.
The United State Department of Veterans Affairs (the “VA”) provides certain benefits to Veterans’ and their surviving spouse. The VA offers the Aid and Attendance (the “A&A”) Pension to a Veteran or their surviving spouse. Similar to Medicaid, there is a required application process and criteria that must be met in order to qualify for this pension. Once approved, a monthly pension is distributed (for example, a surviving spouse of a Veteran will receive a pension amount of $1,094 a month (tax free). While planning for VA benefits is less complicated than Medicaid planning, careful consideration must be paid so that future eligibility for Medicaid is not negatively impacted.
Long Term Care Insurance is an excellent way to provide a range of benefits that can offer reliable and comprehensive health care coverage. Long Term Care policies are tailored with respect to the amount of coverage, waiting periods, and inflation protection. It can be a stand-alone policy or have a rider offering a death benefit. It doesn’t cost anything to evaluate what options are available that provide coverage over and above the general Medicare coverage (Medicare is available to taxpayers who are 65 and eligible for Social Security).
There is also something called ‘Medigap’ which is health insurance that you can buy to cover expenses that Medicare will not cover. Again, this is something that doesn’t cost anything to look into.
Although we are generally living longer these days, we are requiring more health care coverage than ever. It is smart to build planning for prolonged health care into an Estate Plan before the last minute.
Schanker and Hochberg, P.C. also has an elegant office location in the convenient midtown section of Manhattan located at: 767 Third Avenue, 35th Floor at 48th Street.
Executor and Trustee Commissions
Under Section 2307 of the Surrogate’s Court Procedure Act, Executor Commissions are based on the value of the Probate Estate as follows:
• 5% on the first $100,000 of Probate Estate Assets
• 4% on the next $200,000 of Probate Estate Assets
• 3% on the next $700,000 of Probate Estate Assets
• 2.5% on the next $4,000,000 of Probate Estate Assets
• 2% on any sums over $5,000,000 of Probate Estate Assets
Gross Probate Estate = $2,000,000
• 5% on the first $100,000 = $5,000
• 4% on the next $200,000 = $8,000
• 3% on the next $700,000 = $21,000
• 2.5% on the remaining $1,000,000 = $25,000
Total = $61,000
Commissions for a Corporate Executor/Trustee are usually set forth outside of the Will and fixed by the Financial Institutions own schedule.
Under Section 2309 of the Surrogate’s Court Procedure Act, the annual Trustee Commissions are based on the Trust’s Principal as follows:
• $10.50 per $1,000 on the first $400,000 of Principal
• $4.50 per $1,000 on the next $600,000 of Principal
• $3.00 per $1,000 on any additional sums exceeding $1,000,000 of Principal
Value of the Trust Principal as of 12/31/12 = $2,000,000
• $10.50 per $1,000 on the first $400,000 = $4,200
• $4.50 per $1,000 on the next $600,000 = $2,700
• $3.00 per $1,000 on any additional sums exceeding $1,000,000 = $3,000
Total = $9,900
The Trustee is entitled to a 1% commission based on the value of the final distribution paid.
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. Regardless of where we meet, you will know that with Schanker & Hochberg by your side, you have a trustworthy and expert advocate that will help you plan your legacy in the best interests of you and your loved ones. 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.
Highlighted S&H Attorney:
Steven Schanker received a Bachelor of Arts degree from the University of Rochester and his Juris Doctorate 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 of America.
His knowledge and competence have earned him widespread respect amongst his peers and colleagues. A very relaxed and personable manner has enabled him to build long, gratifying and rewarding relationships with his clients.
Mr. Schanker is an accomplished public speaker and has lectured in front of both lay and professional audiences on an national basis. He has been retained and continues to be retained by several large financial institutions, including life insurance companies and stock brokerage firms. He is an active member of the Society of Chartered Life Underwriters Speakers Bureau, the Estate Tax Planning Council of Long Island, a speaker at “Top of the Table,” a former adjunct professor at Adelphi University on Long Island, and a quoted author, including articles in Forbes and Fortune magazines.
Mr. Schanker resides in Huntington, with his wife, Carol, who is an accomplished artist.