Would Your Group Be Interested In A Presentation on Wills and Estate Issues?

Here is a review I just received from the leader of the event at which I gave my most recent presentation, on July 30, 2014 at 425 Park Avenue, New York, New York:

Thank you very much for delivering ... outstanding materials to the audience. Here is only one of responses we received  " Stephen Weiner's clarity, preparation, and wealth of experience permeated his well organized talk on capacity, Power(s) of Attorney, Health Care Proxies, and Living Wills."

This presentation was fifty minutes long, followed by questions from a sophisticated audience.

I enjoy giving presentations to groups on topics of interest to them about Will and Estate Issues.  If your group could benefit from such a presentation, contact me.

A Time to Review the Will

The book of Koheles (Ecclesiastes) says there is a certain time for everything under the sun.  A time to review your Will is when your family changes,  health changes, or financial circumstances become prosperous.  The family changes that call for reviewing your will include marriage or divorce, birth of a child, death of a loved one.  

Persons who become divorced usually feel urgency about changing their Wills, for obvious reasons. However, they have overlooked changing named beneficiaries in accounts and insurance policies.  In a recent Supreme Court case, the Court held that a woman who had been divorced ten years before was the beneficiary of a federal employment life insurance policy because her ex-husband never changed the beneficiary designation to his new wife.
A widower came to me to change his Will which left everything to his wife who had passed away years before.  One of the children was still a teenager.  In the event the father dies, we came up with a Trustee to handle the teenager’s funds until he is old enough to handle them himself.  

Changes in relationships can require changing a Will.  In one of my cases parents had designated guardians of their children under an old Will.  However, the parents had become too distant from the guardians to feel they could carry out that important responsibility.  It was time to change the Will.

When a child is born after the execution of a Will (“after-born child”), and is not provided for in any way in that older Will, New York law applies a formula that can lead to an unusual result.  In a famous case a parent wrote a Will leaving everything to one favorite child out of a total of five children when the Will was executed.  Another child was born after the Will.  A court found that  the child inheriting under the Will and the after-born child each inherited fifty percent.  The other four children received nothing.   

Health changes are an opportunity to consider whether you need to update not only a Will, but a health care proxy, a living will, and a power of attorney.  It is important to have reliable people in place when you need them because you cannot make decisions on your own.  Also, they need guidance on what your desires are while you can explain it clearly.  Depending on one’s age and financial circumstances, this may be time for Medicaid planning.

As people get older and live alone with one or more pets, they need to consider how the pet will be taken care of.

A final sign it is time to review the Will is when financial circumstances become prosperous. A multi-million dollar estate including life insurance and the value of a residence can lead to a New York estate tax amount that would have been reduced with advance planning.  As the saying goes, make hay while the sun shines.#



Cooperative Transfers and The Cost of Certainty


Transferring a cooperative to an adult child, relative, or friend requires having cooperative shares reissued with all of the co-owners’ names on the shares.  If the original owner becomes a co-owner, then his or name appears on the new shares together with the names of the new co-owners.  This is a gift to the co-owners that is reportable to the IRS.   Alternatives to making new co-owners during lifetime are to place the shares in a living trust that will provide them the shares as an inheritance, or to leave them as an inheritance under a will.

No matter what alternative is used, you must request permission of the cooperative board to transfer ownership.  In general, the board requires financial information and interviews the new co-owner(s) to see if he or she is suitable to be an owner and a resident.  The cooperative requires that a fee be paid for the transfer and that legal expenses be paid to the cooperative’s attorney.  Usually, the cooperative requires the original owner's attorney to prepare a state tax form that must be filed even when the transfer is made as a gift.  The City of New York requires a filing fee be paid.  In my experience there can be a long delay between the application for approval and the cooperative’s decision.   The cooperative may authorize co-ownership and deny permission for the new co- owner to live in the residence.  The effect of this "split-decision" is to permit the new co-owner to sell the property, with approval of the board of the new purchaser.

Why transfer cooperative ownership directly?

The reason to transfer the ownership of the cooperative directly is to have certainty during one’s lifetime that the transfer has taken effect.  While the cooperative approval process is required, there is no involvement of a court, or of a trustee of a trust.  The value of having this certainty for the original owner to determine.  A lawyer cannot quantify that value.  On the other hand, a lawyer helps you see the cost of having this certainty.

Are there costs in transferring ownership directly rather than using the alternatives?

There are disadvantages to transferring ownership directly during lifetime.  The first involves the capital gains tax, which now is about 23.8 percent of the difference between the basis (the cost of the cooperative, with adjustments) and the sale price. There is a step up in basis for inherited property to the fair market value at the date of death.  Thus, when property is sold, the capital gains is based on the difference between that stepped up basis and the sale price.  On the other hand, by making the heir a co-owner, the heir gets the original owner's cost, called “carryover basis.”  Where the value of the cooperative has been increasing, as is the case with units that have been owned for years, this means a bigger capital gains tax payable to the IRS.   

A second disadvantage is to delay eligibility for medicaid if this gift is made within five years of the medicaid application.

How do the alternatives of transferring title to a living trust or leaving the shares under a will compare?

The advantage of transferring title to a living trust is that on the death of the grantor the property can be transferred relatively seamlessly.  The property is taken out of the probate process that requires court filings and court approval of an Executor to transfer title.  It does not cause the basis/capital gains tax problem discussed above.  However, the trust does not alter the fact that the the new owner can neither sell the unit or move in without permission of the cooperative board.  Inheritance under the will depends upon court approval.  This involves a filing fee, attorney’s fees for probating the will, and awaiting the court’s decision on a petition.

In conclusion, these factors should be considered when considering making a change in cooperative ownership to a related party.


There Is No Absolute Power of Attorney

There is a famous saying that "power corrupts, absolute power corrupts absolutely."  A power of attorney is a written grant to an agent to exercise certain rights of the grantor.  The New York form contains warnings that should be read in their entirety.  There is a  catch-all provision in the power of attorney form in New York that can be checked to give all of the possible powers to the agent.   However, even if this catch-all provision is checked, there are limits on the power of attorney.  In order for the agent to make major gifts of the grantor's property, a gifts rider has to signed by the grantor in the presence of two witnesses.  A power of attorney cannot be used to change a will or to make health care decisions for the grantor.  (A health care proxy is necessary for health decisions).  A power of attorney has to be used for the benefit of the person giving it.  A power of attorney does not remain in force if it is revoked by the grantor, or when the grantor dies.#


It is 9 a.m., do you know who your beneficiaries are?

I remember a television public service announcement  that showed a nighttime scene of a city street and an announcer saying, "It is 10 p.m., do you know where your children are?"  I imagine the parents who saw it asking themselves that question and being concerned if they didn't know the answer.   Here is another question, it is 9 a.m., do you know who your beneficiaries are?  These days people have jointly held assets including accounts payable on death, IRAs payable on death, annuities payable on death, coops that are jointly owned, or jointly owned homes.  It is important to know that a Will or a Trust does not override the joint ownership or beneficiary designations in these documents.  If left as is, these items are inherited "by operation of law" regardless of the language of a Will or a Trust.  These are also known as non-probate assets.  Estate planning requires knowing every beneficiary of every account and making an estate plan based on the total picture. #