Trusts

Retirement Benefits as a Lasting Legacy

Retirement Benefits as a Lasting Legacy

“When a Trust is a Must”
Part 3 in a series by Joanne Seminara, Esq.

An IRA Trust is an important estate planning tool for maximizing, protecting and managing your Individual Retirement Account or IRA.  Using this tool, an IRA Trust, rather than one or more individual beneficiaries are named as the IRA beneficiary.  The IRA Trust, in turn, designates the beneficiaries of the asset. Properly drafted, an IRA Trust allows extended tax deferral benefits by “stretching out” the payments over the beneficiary’s life expectancy.

An IRA Trust may be advisable for one of more of the following reasons:

  • Beneficiary is too young to manage her own affairs
  • Beneficiary is disabled
  • Asset protection and creditor protection
  • The need to preserve assets for children in second marriages and/or non-traditional family members
  • Wealth preservation
  • Tax planning

Consider the following situation.  Anna, age 78, is a retired widow who, after working as a paralegal at a large law firm for 40 years, has amassed a $500,000 IRA.  Anna has one child,  Nancy, age 50, from whom she is estranged, and 2 granddaughters, who are 13 and 15.  Nancy is married to Mike, a spend-thrift who does not contribute much support to the household.  Anna does not wish to leave her substantial IRA to her daughter and wants to leave her sizable IRA to her grand-daughters so they have the chance of a good start in life.  How can Anna safeguard her hard earned IRA assets for their future needs?

The solution is an “IRA Trust” for the benefit of her granddaughters, who may not be adults or mature enough to manage their own assets at Anna’s death.  A “Trust” allows a person, called a Trustee, to manage assets for the benefit of another person to ensure the assets are used as intended. An IRA Trust is specifically drafted to hold IRA assets, which are typically “tax deferred,” that is, assets for which income taxes have not been paid and for which taxes will be due when the asset is distributed, or “paid out,” in the future.

A designated beneficiary of a retirement benefit plan is generally required to take minimum required distributions (or “MRDs”) starting at age 70.5 over his or her life expectancy.  If a Trust is the beneficiary of an IRA and all the Trust beneficiaries are individuals, the oldest beneficiary‘s life expectancy will be used to calculate the MRDs.  An IRA Trust is the perfect tool for Anna because it allows for tax deferral on the IRA assets (to the extent they are not paid to Anna and taxed during her lifetime) to be further “stretched out” past her lifetime and continued over the lifetime of her now 15 year old granddaughter for the benefit of both granddaughters.

An IRA Trust can be drafted as an “accumulation trust” so that distributions to beneficiaries are accumulated and distributed at certain defined beneficiary ages, or a “conduit trust” which requires direct mandatory distributions to a beneficiary annually over his or her life expectancy term. IRA Trusts can even allow for the flexibility to change the distribution plan during the term of the Trust if the Trust provides for a “trust protector” to make this decision.

Creators of IRA Trusts, called the Grantors, like Anna, should carefully consider the age of their beneficiaries and their likely needs when deciding between an Accumulation Trust and a Conduit Trust.  This decision should follow review of the time period that the IRA assets will remain undistributed or “in trust,” when and how the distributions will be made, and the tax ramifications for such assets.

Trusts are taxed at higher income tax rates than individuals.  Therefore, to the extent the income earned by the IRA is “accumulated” within the Trust and not paid out to an individual beneficiary in any year, the Trust will have to pay income taxes at this higher rate.   Alternatively, an IRA “conduit” trust which provides for regular mandatory distributions to a younger beneficiary may achieve more favorable income tax treatment. This type of Trust, which regularly sheds income over the lifetime of the beneficiary, allows income tax to be paid at the individual’s tax rate, which is typically lower.

There are other issues to consider when deciding between an Accumulation Trust and a Conduit Trust.  If the Grantor wishes to name more than one beneficiary and/or a contingent beneficiary, and one beneficiary is significantly older, a Conduit Trust may be more suitable. Conduit Trusts offer the advantage of using the often longer life expectancy of a single beneficiary, and thus greater tax deferral and growth, rather than the shorter life expectancy of the older beneficiary.

IRA Trusts are advanced estate planning tools governed by complex Federal Internal Revenue Code regulations.  There are special restrictions and terms that must be included in an IRA Trust for it to be effective. An IRA trust should be considered in consultation with experienced estate planning attorneys and financial advisors.

Additional resources provided by the author

Part 1: When a Trust is a Must

Part 2: When a Trust is a Must:  “Long-Term Care and Asset Protection”

 

Joanne Seminara

GRIMALDI & YEUNG LLP:
Phone: 718-238-6960
Brooklyn and Manhattan Offices:

9201 4th Ave, 6th Floor
Brooklyn, NY 11209

546 Fifth Avenue, 6th Floor
New York, NY 10036

This post is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this site you understand that there is no attorney client relationship between you and the lawyer. The post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. ATTORNEY ADVERTISING.

Complimentary Breakfast Seminar: “Medicaid Planning & Asset Protection Trusts”

Complimentary Breakfast Seminar: “Medicaid Planning & Asset Protection Trusts”

Grimaldi & Yeung LLP is hosting an upcoming Complimentary Breakfast Seminar:

Judith D. Grimaldi & Naomi Levin will be presenting:

“Medicaid Planning & Asset Protection Trusts”

When:
Thursday, October 12, 2017
8:30 AM to 10:30 AM

Where:
Fifth Avenue Diner Restaurant
432 5th Avenue (Btwn. 8th& 9th Sts.)
Brooklyn, NY 11209

MUST RSVP by October 9th: mcoppola@gylawny.com or (718) 238-6960

PRINTABLE FLYER

GRIMALDI & YEUNG LLP
Phone: 718-238-6960
Brooklyn and Manhattan Offices:

9201 4th Ave, 6th Floor
Brooklyn, NY 11209

546 Fifth Avenue, 6th Floor
New York, NY 10036

This post is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this site you understand that there is no attorney client relationship between you and the lawyer. The post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. ATTORNEY ADVERTISING.

Look Who’s Talking: A Book Talk by Joanne Seminara, Esq.

Look Who’s Talking: A Book Talk by Joanne Seminara, Esq.

Meet Joanne Seminara, Esq.
Saturday, May 13th, 2017
2:30 PM
Fort Hamilton Library
9424 4th Ave
Brooklyn, NY 11209

Ms. Seminara, a Co-Author of 5@55: The 5 Essential Legal Documents You Need by Age 55”, will provide advice about Wills, Health Care Proxies, Living Wills, Powers of Attorney, Digital Diaries and the protections each of these documents provide. 

 

GRIMALDI & YEUNG LLP:
Phone: 718-238-6960
Brooklyn and Manhattan Offices:

9201 4th Ave, 6th Floor
Brooklyn, NY 11209

546 Fifth Avenue, 6th Floor
New York, NY 10036

This post is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this site you understand that there is no attorney client relationship between you and the lawyer. The post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. ATTORNEY ADVERTISING.

Long-Term Care and Asset Protection

Long-Term Care and Asset Protection

Read Part I here in the article series by Joanne Seminara, Esq. 

Seniors and persons with disabilities are justifiably concerned about the cost of long-term care, that is, long-term home care and nursing home care not covered by traditional health insurance, such as Medicare or other insurance. If you have been diagnosed with a long-term illness for which you will need care, the prospect of spending most or all of your hard-earned savings paying for this care, or worse, going without needed care, can be terrifying.

The cost of home care is catastrophic, especially for those who need full-day or 24-hour care.  Even more worrisome is the high cost of nursing home care, which can easily cost $15,000 to $18,000 per month and quickly wipe out a lifetime of careful savings. Then, there is the unsettling possibility of a lien being placed on your estate or your home for Medicaid services provided during your lifetime.

Enter the Medicaid Asset Protection Trust:
Medicaid is a government-funded program through which you can receive care at home or in a nursing home.  Applying for Medicaid is a complex process requiring extensive documentation of assets and income that can be very difficult to navigate. An experienced Elder Law attorney can protect your assets using a Medicaid Asset Protective Trust, or can suggest other ways to protect your assets.

A properly drafted and funded Trust can provide many benefits while helping you obtain the long-term care you may need.

For many people the home that they own and live in is their most valuable asset.  In transferring your home to a Medicaid Asset Protective Trust you can preserve your and your spouse’s exclusive lifetime residential rights and protect the home from a lien for Medicaid services.  If you place this asset (or any other assets) in this kind of Trust, the transfer of assets starts the Medicaid 5 -year “look- back” period which affects the timing of your eligibility for nursing home care.

This Medicaid Asset Protection Trust can also manage bequests to your loved ones for example, by providing specially tailored protections for a beneficiary who is disabled; a beneficiary who is irresponsible with money; and a beneficiary who is a minor.   If you have a beneficiary who is being sued, is in debt, or in the middle of a divorce, this Trust can provide these further protections.  Moreover, if properly drafted by an experienced attorney, a Medicaid Asset Protective Trust can:

  1. Provide significant capital gains tax savings compared to transferring the title to your home directly to family members during your lifetime;
  2. Name Trustees to manage your Trust assets for you;
  3. Provide that such assets not be distributed until after your death; and
  4. Act as a Will substitute and allow your estate to avoid probate

Caution:There is a 5-year period, starting from the date you transfer assets to the Medicaid Asset Protective Trust, which governs whether a penalty period will affect your eligibility for Medicaid-covered nursing home care. Thus, it is best to create and fund this kind of Trust more than 5 years before you are likely to need nursing home care.  In contrast, there is only a one-month penalty period for transfers of assets in connection with applications for Medicaid home care.

Because the law has many nuances and pitfalls, you are well advised to seek the advice of an Elder Law Attorney before creating a Medicaid Asset Protective Trust or any other kind of Trust, transferring assets or making a Medicaid application. An Elder Law attorney can accurately answer all your questions and assist you with a strategy to meet your individual needs.

Additional resources provided by the author

Joanne Seminara
March 30, 2017

GRIMALDI & YEUNG LLP:
Phone: 718-238-6960
Brooklyn and Manhattan Offices:

9201 4th Ave, 6th Floor
Brooklyn, NY 11209

546 Fifth Avenue, 6th Floor
New York, NY 10036

This post is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this site you understand that there is no attorney client relationship between you and the lawyer. The post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. ATTORNEY ADVERTISING.

When a Trust is a “Must” – Part 1

When a Trust is a “Must” – Part 1

Part 1 in a series of articles written by Joanne Seminara, Esq.

When a famous person dies, the public often learns little about what was left in their estate.  Sometimes, however, all the messy details wind up in the press. As a practical matter, whether or not an estate story becomes public knowledge may depend on whether the celebrity settled his or her estate with a Will or with a Trust.  Trusts are almost always private documents. Wills often require more notification to others and must be filed in Court.

Does that mean only celebrities need Trusts to protect their privacy?  Even if the newspapers do not care about what’s in your estate and what you left to whom, your family members likely will care, especially if they were left out.  How will they find out?  Well, if your estate will be distributed through a Will, the law says that anyone who might be in line to inherit has to be notified so that they have an opportunity to object to the Will.  Thus, anyone who values their privacy in this regard can benefit from a Trust.

There are many other good reasons that a Trust may be the best way to distribute your estate.  In fact, depending on your relationship with the persons or organizations to whom you wish to leave assets after your death, your long-term care needs and the nature of your assets, a Trust may be a “must.”

To understand why a Trust may be a “must” you need to understand the possible pitfalls of using a Will to settle an estate in certain situations.

A Will must go through the process of “probate” in order to transfer your assets to those designated in your Will.  In probate, a Will is validated and the Executor named in your Will is appointed by Surrogate’s Court order.

Once appointed, the Executor can represent the Estate: collect and liquidate estate assets, pay debts and taxes, and eventually pay out the estate among the beneficiaries named in the Will.  But many of our clients are very surprised to learn that even the consent of, or notice to, persons who will inherit nothing under their Will must be obtained before the Court will issue an order of probate.

Before an order of probate is issued by the Court, an estate attorney must obtain the written, notarized consent to the probate of all those persons who were your natural heirs.  Natural heirs or “heirs-at-law” (or next-of-kin) are those persons that state law dictates would get your property if you had no will or died “intestate.”  That is, your natural heirs must agree with (or at least not challenge) your Will and your choice of Executor.

If you are leaving your estate to your natural heirs, say, to your spouse and children, getting this written consent will not be a problem because you are leaving your estate to the same people who would get your property if you had no Will. However, if you are not leaving property to all your next-of-kin, or in amounts less than they would get under the “intestate” law (or leaving them less than they expected) these persons may have no incentive to consent in writing to the probate.  Moreover, if they are upset to learn that you have left them nothing, things could get worse.  They could file an objection to the probate of the Will. And this is where the story gets much more complicated, lengthy and expensive.

Even if such persons have no reasonable prospect of overturning your Will they can tie up a court proceeding  for months, or even years, with one or more baseless claims about the validity of the Will.)  For example, if you are single and childless and your next of kin are your siblings or the children of your predeceased siblings and your Will does not give your assets to all these persons, (called “intestate distributees”) your Executor or her attorney must notify them of the probate of your Will, provide them with a copy, and attempt to get their consent to probate. So, first they must be located! If they cannot be found and their consent obtained then a “Citation” will have to be delivered to them to give them the opportunity to appear in Court to object to the probate.  Assuming you left your Executor the current addresses for all of these distributees, just the process of serving each distributee with a Citation and proving to the Court that this has been done can take months. (And that’s assuming you don’t have relatives who live abroad!) Then, if an objection to probate is filed by one of them it must be formally answered in Court, which could be just the beginning of years of delay, the worst case scenario being a full-blown Will contest trial.

Ever see a dilapidated empty house with overgrown weeds and boarded up windows that languish for years?  Chances are the reason it’s empty and hasn’t been sold is that it is tied up in court proceedings.

On the other hand, if you create a Trust to transfer your wealth upon death and it is carefully drafted and funded with all your assets, your estate can avoid probate.  There is no requirement to notify any persons who will not inherit your assets under your Trust.  Perhaps most importantly, a Trust, because it need not be filed in Court to take effect, is a private document shown after your death only to those persons who will receive a share of your assets. The opportunity of a challenge to your wishes is greatly reduced and the cost of settlement of your estate will likely be less. Most importantly, your assets will be distributed to your beneficiaries months or years earlier than if you passed them through the Will probate process.

This is only one reason why a Trust may be a “Must.” More reasons Trust planning is recommended in certain circumstances will be covered in future articles.

Additional resources provided by the author

Joanne Seminara
March 30, 2017

GRIMALDI & YEUNG LLP:
Phone: 718-238-6960
Brooklyn and Manhattan Offices:

9201 4th Ave, 6th Floor
Brooklyn, NY 11209

546 Fifth Avenue, 6th Floor
New York, NY 10036

This post is made available by the lawyer for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this site you understand that there is no attorney client relationship between you and the lawyer. The post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. ATTORNEY ADVERTISING.

Procrastination, Turning 55 & the Essential Legal Documents in Between

Procrastination, Turning 55 & the Essential Legal Documents in Between

Procrastination: A Hidden Trap
by Joanne Seminara, Esq.

When you were young and one of your teachers gave you an assignment that was due in two weeks, did you rush home to complete it? Or were you more likely working to finish it late on the night before it was due?

We all procrastinate. Ok, maybe not when your boss says “I want this on my desk in an hour.” But if no one is looking over your shoulder, it’s a task that requires a certain amount of effort and there’s a cost involved, so it’s easier to say “I’ll get to it later.”

As a lawyer I’ve seen this to the extreme. One week I met two women, both over 100 years old, who both indicated they were in no rush to prepare a Will. That’s a great story to tell over cocktails but I’ve also seen the pain and suffering that comes when tragedy strikes while someone was procrastinating. For example, one day in court I watched a woman crying to the judge because her husband was incapacitated, had never made a Power of Attorney (which meant  that she didn’t have any access to their money) and she was about to lose their house. And her husband was a lawyer.

The most common problem that walks through the door of my office is a family with an elderly mother or father who has to be put into a nursing home. Because they’ve done no planning, rather than have Medicaid foot the bill, $15,000 or more a month is going to have to come out of the elderly person’s assets.  While we can provide some help at this “11th hour,” planning this late results in unavoidably greater cost in terms of stress, finances and delay.  This is a situation that could have easily been prevented with the earlier help of an experienced elder law attorney. But because there’s a “five-year” transfer or “look back” period which can lead to the imposition of a Medicaid penalty period, the necessary legal work must be completed years before nursing home care is required.  And so, due to no planning, family members who would have inherited substantial estate assets pay the high price of procrastination.

Sadly, dementia, often caused by Alzheimer’s disease, is on the rise. Once a dementia sufferer reaches a certain level of cognitive decline, she or he can no longer sign legal papers. And that often means that procrastination will claim financial victims, who are often the spouse or children of their incapacitated loved one, as well.

One reason that people procrastinate in making these plans is that, in our society, we are ill prepared to deal with the concept of death. Death is inevitable and because planning for it requires facing its inevitability many people prefer to push anything having to do with death aside. Which is one reason I wrote “5@55: The Five Essential Legal Documents You Need By Age 55.” 55 is an age when thoughts of dying are probably dim enough not to frighten you away from protecting yourself.

If you’re 55 years of age or older and don’t have a Will, Health Care Proxy, Living Will, Power of Attorney and Digital Diary, I urge you to stop procrastinating in order not to become a victim of Father Time.

 

Joanne Seminara, Esq.
Partner
GRIMALDI & YEUNG LLP
9201 Fourth Avenue, 6th Floor
Brooklyn, NY 11209
Tel:   718-238-6960
Fax:  718-238-3091
jseminara@gylawny.com