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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, www.schankerandsch.wpengine.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. 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. 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: andrea@schankerandsch.wpengine.com
Practically Speaking!
Statistically 60% of all adult Americans die with no estate planning documents in place whatsoever. (No Will, no Trust, etc.). 80% of all adult Americans who die will either have no estate planning documents in place or improper estate planning documents in place! Yet, 100% of adult Americans will die.
If you are in the 60% even with very modest assets (yes, this applies to our children and grandchildren who are of age), estate planning documents are an absolute necessity. At the very least health care decisions must be made, decisions as to who will make financial decisions if an event of incompetency were to take place, and who will receive assets as a result of your death. Even if you have documents in place that you believe adequately cover the situation, relationships with family and friends change constantly, tax and legal changes change even more frequently and to not review on at least an annual basis your estate planning documents to mitigate a negative tax impact, makes no sense whatsoever. At the very least all you have spent is a little bit of time to have an annual review. Schanker and Hochberg does not impose a fee for that annual review.
If you have documents in place, make sure you and someone other than you and your spouse knows where they are and has access to them. A document that cannot be found but which you are certain had been signed, is not any different than not having signed the document at all.
The only common bond that all human beings have is mortality. We buy automobile insurance even though we all believe and hope we will never get into an accident; we buy homeowner’s insurance although we all believe and hope we will never have a home fire or theft. However, the one certainty in life, death, is something for which far many of us do not plan properly.
The Huntington Townwide Fund has named
Steven M. Schanker as an honoree at their 2014 Gala
Fundraiser in honor of his outstanding achievements
in the Huntington community.
Schedule a complimentary appointment to review existing
Estate Planning documents in our Long Island Office, Manhattan Office,
or our New Jersey office.
Contact us at either (631) 424-5400 or (212)564-3307.
Please see our website at www.schankerandsch.wpengine.com
for our locations and directions.
Gifting to Minors
Gifting to minors can be a great estate planning vehicle to remove assets from your taxable estate, not to mention a good way to leave something to your children and grandchildren while you are alive and see them enjoy it. Many gifting techniques are available. Which one is best depends on the amount you intend to give, the extent of control you want over the funds and the purpose of the funds.
Custodial Accounts
A custodial account is a financial account set up for the benefit of a beneficiary and administered by a responsible person, known as a custodian. Usually the custodian is the parent. The custodian manages and has control over the money until the minor is at the age of 18 or 21. At this point, the minor has a right to take control of the account.
Advantages
1. Donee can use the money for anything
2. Easy to set-up
3. Favorable tax treatment – First $950 of unearned income is tax-free, anything between $950-$1900 is taxed at more favorable child rate – rest taxed at custodian rate
Disadvantages
1. Child has a right to take control over the account at a young age
2. Funds cannot be transferred between beneficiaries
3. Contributed funds cannot be taken back unless child wants to give it back (BUT, funds can possibly be transferred to a Gift Trust for benefit of just the donee).
4. May cause the donee to have to file a tax return every year when he/she otherwise would not be required
529 Plans
A 529 Plan is a brokerage account set up to fund an education.
Advantages
1. Easy to set up
2. Tax-free growth (as long as funds are used for a qualified educational institution)
3. Tax deductions for contributions in some states depending on plan (i.e. NY gives up to $10,000 deduction if married and set up a NY plan)
4. Can transfer funds between beneficiaries
Disadvantages
1. Funds can only be used for higher education only or there is a 10% penalty plus tax on all accumulated earnings
Gift Trust
A gift trust is a trust set up in which to gift funds to your children or grandchildren. This method allows the donor most control over how the funds are distributed and to whom at the onset. The donor designs the terms of the trust and appoints a trustee to manage it. In order for the funds to be outside of the donor’s
taxable estate the trust must be irrevocable (meaning the terms cannot be changed once the trust is drawn up).
Advantages
1. Customizable – can dictate ages and/or circumstance at which children get funds
2. Funds can be used for anything you or your beneficiaries want (depending on terms of trust)
Disadvantages
1. Tax rates of trust are less favorable than that of individual – best to set up where income distributed to beneficiaries so taxed at more beneficial rate.
2. Cost of preparing annual Income tax returns
3. Legal Fee to set up
Paying education by paying directly to the education institution
Advantage
1. It does not count as a gift at all
Disadvantage
1. No opportunity for appreciation of gifted asset in child or grandchild’s tax bracket (which is usually lower than donor’s)
2. Once you pass away, the opportunity is lost
The Schanker and Hochberg P.C. Paralegal Team: Michele McCann, Amy Fiderer, Nikki Willard,
and Ana Rodriguez.
Paralegal Perspective –
Nikki Willard
FROM DRAFTING TO SIGNING
The paralegal process for preparing documents for signing is called “finalizing” and is customized to each particular client’s decisions and objectives:
- We begin with a drafting assignment from an attorney. This is after the attorney has been retained and has had discussed planning decisions, at length, with the client.
- Drafts are prepared based on the attorney’s instructions and notes.
- After an attorney reviews the drafts and specifies changes and edits, the documents are revised and once approved, these drafts are sent to the client for their review, along with a list of missing information (if any) that the paralegal needs in order to finalize the documents for signing.
- Many clients have questions and comments upon receiving the drafts and we will then arrange for a ‘review’ appointment to meet with the attorney and discuss the drafts.
- The documents are then revised again based on client feedback and drafts are again prepared for review. Once the client approves of the drafts, and gives the paralegal all missing information, a ‘signing’ appointment is scheduled to execute the documents.
- It is important that the client give the paralegal all the missing information before a signing appointment is scheduled. Having complete information before the finalization of documents begins can prevent a client from making hasty last minute decisions.
- It is imperative, in this field of law, to be available for our clients when there is a medical emergency that requires us to draft particular documents at the last minute. Barring such an emergency, we try to avoid rush situations.
- When the paralegal has the missing information needed, and a signing appointment
has been scheduled, the “finalization” process begins. This process can take anywhere from two or three hours to a full day – and depending on the magnitude of the planning documents, sometimes more.
- The documents are prepared in final on high quality paper. We prepare custom manuscript covers for all copies of each document. We create wallet-sized emergency health care laminate cards for health care directives and we produce a letter explaining how the documents should be stored. The documents are presented for the signing appointment along with a portfolio in which one full set of your documents can be stored. The finalized documents are of a high caliber and have gone through a very intricate process.
If a scheduled signing appointment is cancelled by a client at the last minute, we may impose an extra fee for that cancellation. The paralegal has put a lot of time into the finalizing of the documents. Thus, if a signing appointment is cancelled at the last minute, there may be an extra fee reflecting the additional time it takes the paralegal to go through the process again.
I hope this gives you a clearer picture of what goes into making the legal documents accurate, understandable and professional.
Estate and Gift Tax Update
FEDERAL
Several important federal exemptions and exclusions are indexed for inflation and rose in 2014. The Federal Estate, Gift and Generation Skipping Transfer Tax exemptions for 2014 rose to $5,340,000 per person, up from $5,250,000 in 2013. The Annual Gift Tax exclusion for gifts to non-US Citizen Spouses rose to $145,000, up from $143,000 in 2013. The Annual Gift Tax exclusion for all others remains at $14,000. Those who had previously maximized their federal exclusion now have additional gifting opportunity.
NEW YORK STATE
Governor Cuomo has proposed new legislation to change the New York Estate Tax rules. His proposed legislation is subject to modification by the legislature. The legislation proposes to gradually increase the current $1 million New York State estate tax exemption to $5,250,000 (and then indexed for inflation) over the next five years and to reduce the top tax rate from 16% to 10%. The legislation may also require all taxable gifts made by a New York resident after March 31, 2014 to be included in the gross estate for New York State estate tax purposes. Unlike the Federal Estate and Gift Tax regime, there is no ‘portability’ of the unused exemption between spouses. This legislation is currently a proposal and not yet the law.
What to Know:
Beneficiary Designations
The most common Estate Planning blunder is ‘beneficiary designations’ gone wrong or no beneficiaries being named at all. Beneficiaries are assigned to assets such as life insurance, retirement assets like IRAs, 401ks, annuities, and Pensions. Many people also will assign a beneficiary with the designation of ‘transfer on death’ on bank and investment accounts as well. The following are the most common blunders in Beneficiary Designations:
NAMING MINORS. Minors are incompetent in the eyes of the law and are not allowed to own property in their own name. A guardian must be appointed as the custodian of such property and if you have not done so (by Trust or otherwise) one will be appointed by a Court which now necessitates legal intervention.
NAMING SPECIAL NEEDS INDIVIDUALS. If someone receives needs-based, government benefits such as the Medicaid or Social Security’s Supplemental Security Income programs, an inheritance will likely cause them to become ineligible for continued benefits.
Instead of naming these people as beneficiaries, consult with experienced professionals who can implement a strategy to benefit the intended beneficiary without otherwise interfering with their needs-based benefits. One common technique is with a Supplemental Needs Trust.
NOT NAMING ANYONE. A proceeding in the Surrogate’s Court will be required in order to distribute the account through the Estate (Probate if a Will exists or Administration if no Will exists) thus subjecting the accounts to debts of the Estate such as credit card debt or student loans. This is all avoided by naming a beneficiary. From a tax perspective, IRAs and 401ks will not be able to enjoy a ‘stretch’ over the beneficiary’s life expectancy to maximize the income tax deferral. Payout will be forced over five years following the owner’s death.
FORGETTING TO MAKE NECESSARY UPDATES. If you change jobs and you roll over your retirement plan, make sure that your beneficiary designation was also rolled over. Similarly, make sure that your designations are on file if your bank or financial institution changes.
Other ‘red flags’ that should inspire you to review your designations include death of a beneficiary. If you name a spouse and then get separated or divorced, you must also affirmatively change that designation.
A beneficiary designation will supersede your Last Will and Testament or Trust. Make sure that is what you intend to do. Look carefully at who you name as a beneficiary and be sure to regularly review the designations.
Charitable Contributions
Be sure to get a written acknowledgement of charitable contributions! As taxpayers review their charitable contributions for 2013, preparing to take those contributions as tax deductions on their income tax returns, everyone should be mindful of the IRS requirements for recognizing those deductions.
For charitable contributions in excess of $250.00, a cancelled check is not enough to sustain the deduction. There must be a “contemporaneous” acknowledgment on the part of the charity containing the following information: 1) the name of the charity; 2) the amount of any cash contribution; 3) a description of any non-cash contribution; 4) a statement that no goods or services were provided by the charity, if that is the case; and 5) a description and good faith estimate of the value of any goods or services provided by the charity in exchange for the contribution.
The acknowledgement requirement applies to all charities, not just public ones. For instance, if a taxpayer makes a contribution to his or her own private foundation, the foundation must send the acknowledgment letter in order to sustain the charitable income tax deduction.
The IRS considers the acknowledgment to be “contemporaneous” if it is provided by the charity prior to the filing of the income tax return for the year in which the deduction is claimed.
In a recent case, a taxpayer made a substantial cash contribution to his church, but the church failed to send him the contemporaneous acknowledgement. At the time that the taxpayer was audited by the IRS, several years later, the IRS refused to allow the charitable income tax deduction. The taxpayer went back to the church and belatedly obtained the acknowledgment letter. The IRS, however, said that it was not contemporaneous and therefore invalid. The taxpayer went to court to try to force the IRS to accept the charitable income tax deduction, but the court upheld the IRS, saying that the acknowledgment had to be contemporaneous.
The moral of the story is, if you want to obtain a charitable income tax deduction, be certain that the charity gives you a contemporaneous written acknowledgment and that the written acknowledgment contains the information that the IRS requires!
Extensive Services at Schanker and Hochberg P.C.
- Complimentary Initial Consultations for Estate Planning, Probate and Estate Administration (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
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, Esq. — Partner, received her Bachelor of Arts degree in Clinical Psychology from University of Rochester in 1999. She received her Juris Doctorate from New York Law School in 2002. Andrea is a licensed member of the New York and New Jersey Bar Associations. She is the current Secretary of the Huntington Lawyers’ Club, a member of the Suffolk County Bar Association, a member of the New York State Bar Association where she is an active member within the Trusts and Estates Section and the Elder Law Section. Ms. Schanker as a member of the American Bar Association and a member of the Huntington Chamber of Commerce.
Ms. Schanker joined Schanker and Hochberg P.C. in 2004 as an Associate Attorney specializing in Estate Planning, Estate Administration, Business Succession Planning and Elder Law. Ms. Schanker was made a Partner as of January 1, 2014. She regularly delivers Estate Planning presentations to professionals in the financial industry and their clients. Ms. Schanker also regularly advises accountants, financial advisors and insurance advisors in connection with estate tax issues.
Andrea lives in Huntington with her husband, Michael Abruzzo and their daughter, Patricia Gertrude Abruzzo.