Finance & Law

The first question that must be answered is whether you are determined a resident of New York. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

We have seen many clients considered “snowbirds,” those who maintain a residence in New York but travel down south during our harsh winters. For our snowbird clients who want to create estate planning documents and plan for possible care needed in the future, it is important to determine if you should see an attorney in New York or elsewhere. 

The first question that must be answered is whether you are determined a resident of New York or of the other state you are visiting. Some factors to determine residency include the amount of time spent in each state, your mailing address, which state your driver’s license is held, where your car is registered, where you are registered to vote and where you file your income taxes.

Once you determine which state is your primary residence, there are other considerations to be examined regarding your estate plan. Snowbirds should consider where they plan on living in the future and where they think they will likely receive care. There may be a possibility that you move down south upon retirement but you plan to move back to New York to be with family members when you are in need of assistance. Since most clients do not have a plan set in stone, they should have estate planning documents, which may include Medicaid asset protection, that would cover them in either state.

Because the laws governing estate planning and Medicaid benefits differ from state to state, it is advisable that you have your documents reviewed by an attorney in both states to ensure that they comply with the laws in both places. For example, there is an additional signature required on a last will and testament in Florida that is not required in New York. Complying with Florida law when executing a last will and testament will not invalidate the document if it is probated in New York. This will avoid any issues or delay in administration if your will is probated in Florida. 

Additional examples of differences in the law are for powers of attorney and advance directives, including health care proxy and living will documents. Since these are state-specific laws, they often have different terminology that can be confusing when moving between locations. 

For a health care proxy in New York the person named to make your medical decisions is called your “agent.” In Florida the term for the agent acting as your health care proxy is a “surrogate.” In Florida the term used under the law to name the default agent appointed is “proxy.” This could cause unnecessary confusion and should be addressed by your estate planning attorney. 

The language and powers listed in your power of attorney will also differ by state. This becomes especially important when your agent is assisting in long-term care planning. You should make sure that your power of attorney includes all of the possible powers your agent may need should you need long-term care whether it is by privately paying or applying for Medicaid to cover your care costs. This may include: the power to prepare, sign and amend a trust agreement; allow for transfers of assets to your agent; and enter into contracts for caregivers or home health care services. 

For our snowbird clients it is important to consider where you are likely to receive care in the future. We recommend that you have your estate planning documents reviewed by an elder law and estate planning attorney in New York and your warm winter destination. 

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Nancy Burner, ESQ.

Nancy Burner, Esq.

Gifting and Medicaid planning is commonly misunderstood. We often see clients who believe that the gifting rules for Medicaid are the same as the IRS gifting regulations. 

The IRS allows a person to give up to $15,000 per person annually without penalty. Under the code, all gifts made in any given year are subject to a gift tax. However, the first $15,000 gifted to each individual in any given year is exempted from the gift tax, and for that reason, for many individuals, gifting during their lifetime is a way to distribute wealth and reduce their taxable estate at death. Medicaid is not the same.  

Oftentimes, seniors and their children believe that this same exemption holds true for Medicaid eligibility, and that gifting this amount of money away annually will not affect them should they need to apply for Medicaid benefits in the future. 

Medicaid requires that all Medicaid applicants account for all gifts and transfers made in the five years prior to applying for Institutional Medicaid. These gifts are totaled, and for each approximately $13,053 that was gifted, one month of Medicaid ineligibility is imposed. It is also important to note that the ineligibility begins to run on the day that the applicant enters the nursing home rather than on the day that the gift was made.  

For example, if someone has approximately $180,000 in his or her name and gift annually $15,000 to each of four children, the $180,000 would be gone in approximately three years. Under the IRS code, no gift tax return would need to be filed and no tax would be owed. If at the end of those three years the individual then needed Medicaid, those gifts would be considered transfers “not for value” and would have made him or her ineligible for Medicaid benefits for approximately 13 months.  

In other words, the individual would need to privately pay for the nursing home care for the first 13 months before Medicaid would kick in and contribute to the cost of care. 

The amount the individual would pay on a monthly basis would depend on the private monthly cost of care at the nursing facility. If the nursing facility costs $17,000 per month, the individual would need to pay that amount for 13 months totaling approximately $221,000.  

What makes this even more difficult for some families is that an inability to give the money back or help mom or dad pay for her or his care is not taken into consideration, causing many families great hardship. It is important for families who have done this sort of gifting to know that there are still options available to them.  

An elder law attorney who concentrates his or her practice on Medicaid and estate planning can help you to optimize your chances of qualifying for Medicaid while still preserving the greatest amount of assets.      

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office. 

By naming a trustee to decide the amount of distributions to be taken, the account holder can rest assured that the IRA savings won’t be squandered. Stock photo

By Nancy Burner, ESQ.

Nancy Burner, Esq.

One of the most misunderstood planning strategies is that retirement funds, such as 401(k)s, 403(b)s, traditional individual retirement accounts (IRAs) and Roth IRAs, should not name a trust as designated beneficiary. My clients are often advised by their financial adviser to name individuals and not trusts, even minor or disabled beneficiaries. That could be the most expensive mistake made by a retirement account holder and one I often see. The IRA retirement trust is the answer.

First, clients are concerned about protecting their beneficiaries from claims of creditors: that is, divorcing spouses, judgment creditors and Medicaid if the beneficiary needs long-term care.  

While IRA accounts are protected from creditors of the original account holder and surviving spouse, the same is not true for inherited IRAs. The Supreme Court of the United States has ruled that when someone other than the spouse inherits an IRA, the account is subject to beneficiary’s creditors. Thus, if parents want to protect their child, they can name a trust as the beneficiary of the account, instead of naming the child directly. Correctly written, the trust can allow the trustee to use the beneficiary’s life expectancy, commonly referred to as a “stretch IRA.” 

Under federal tax law, designating an individual as the beneficiary of a retirement account results in tax efficiencies by allowing the beneficiary to take the benefits over their life expectancy based upon the beneficiary’s age at the time of the owner’s death and the use of an IRS actuarial table. 

Each year the beneficiary of the IRA must take a minimum distribution from the inherited IRA and must pay income tax on the distribution. The balance of the IRA continues to grow tax deferred, only distributions are taxable. Therefore, a young beneficiary will be able to defer the tax longer (commonly known as “stretch”) and enjoy exponential growth. In the case of a Roth IRA, the account holder has already paid the tax, so the beneficiary can continue to have tax-free growth, not tax deferred, over his or her life expectancy.

In order to use the trust beneficiary’s life expectancy, the trust must meet the following criteria: 

The trust must be valid under state law; the trust must be irrevocable by the time of the account holder’s death; the trust beneficiaries must be identifiable within the trust document; the retirement beneficiary custodian, issuer, administrator or trustee must be provided with a copy of the trust document by Oct. 31 of the year after the year of the retirement owner’s death and there must be an agreement to that information in the event it is ever changed; and all the “counted” beneficiaries of the trust are “individuals.”

Typically, trusts that satisfy the above criteria will qualify for the stretch. The trusts are drafted as either a conduit trust or an accumulations trust. 

The simplest trust is a conduit trust, which allows the trustee to decide on the amount and timing of any and all distributions from the trust. However, any distributions taken must be paid immediately to the beneficiary — who must be an individual. The trust can be drafted to give the trustee the power to take only minimum distributions or distributions more than the minimum.  

The second type of trust is a qualified accumulation trust. This trust permits the trustee to accumulate annual minimum required distributions in the trust after the distributions are received from the inherited retirement benefit and is used for beneficiaries that have existing creditor problems to protect the annual distributions from a creditor’s reach. 

If the payment were to be paid to the beneficiary outright, the creditor would be able to take the distribution. This type of trust is also used for a supplemental needs trust for a disabled individual. Since most supplemental needs trusts are intended to protect government benefits, it is imperative that the distributions be permitted to accumulate in the trust.  

Under New York law, for example, the beneficiary (other than supplemental needs beneficiary) can be her own trustee with the power to make distributions to herself for an ascertainable standard of health, education, maintenance and support without subjecting the trust to claims of her creditors. In cases where the beneficiary is unable to act as trustee, because of lack of maturity, irresponsibility or disability, someone else can be named as trustee. Importantly, the trustee will be the “gatekeeper” and take minimum distributions and exercise discretion to take even more from the IRA if needed and permitted by the trust terms.  

By naming a trustee to decide the amount of distributions to be taken, the account holder can rest assured that the IRA savings won’t be squandered. Beneficiaries that are not financially savvy can create tax problems by taking distributions without considering the income tax consequences. Not only will the distributions be taxable, the distribution may put the beneficiary in a higher tax bracket for all their income. 

Retirement funds are often the largest assets in a decedent’s estate and usually given the least amount of consideration. Consideration should be given to naming a retirement trust as the designated beneficiary.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office. 

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By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS: In his will my father names me as the executor of his estate. I filed a petition in Surrogate’s Court to be appointed executor and have been issued letters testamentary. In addition to his home in New York, my father owned a vacation home in Florida, which I need to sell. 

THE QUESTIONS: Do the letters testamentary issued by the New York Surrogate’s Court give me the authority to sell the property in Florida? I was told I had to get authority from a court in Florida that deals with estates. Is that true?

THE ANSWER:  The quick answers to your questions are “no” and “yes,” respectively. Letters testamentary issued by a Surrogate’s Court in New York give you the authority to handle real property in New York. They do not give you the authority to sell property outside the state. That is because New York courts do not have jurisdiction over property in other states. In order to sell the Florida property, you will have to obtain authority from a court in Florida that handles matters relating to estates.

In order to obtain authority from the Florida court, you need to file a petition with the probate division of the circuit court in the county in Florida where your father’s property is located. 

As part of the petition you will need to provide the Florida court with a copy of the petition filed with the New York Surrogate’s court and a copy of the letter testamentary issued to you by that court. You will also need to pay the court a fee based upon the value of the Florida property. Once that court reviews and approves the petition, you will be issued ancillary letters testamentary and will be appointed the personal representative of your father’s estate. Based on that appointment, you will be able to dispose of your father’s property in Florida.

The ancillary probate process can be quite costly, especially if you retain Florida counsel to handle the matter for you. Because of the extra time, effort and expense of an ancillary proceeding, some people avoid the process entirely by creating a revocable trust to hold their out-of-state property. This is especially true when people own property in more than one state in addition to New York. 

If your father had put the Florida property in a revocable trust and named you as the trustee, you would have been able to dispose of the property without the need for court intervention. An experienced estate planning attorney could have discussed this option with your father and helped him determine how best to proceed. 

Linda M. Toga provides personalized service and peace of mind to her clients in the areas of estate planning, wills and trusts, Medicaid planning, estate administration, marital agreements, small business services, real estate and litigation. Visit her website at www.lmtogalaw.com or call 631-444-5605 to schedule a free consultation.  

There are many reasons why estate planning is important.

By Nancy Burner, ESQ.

Nancy Burner, Esq.

Regardless of your age, the creation and maintenance of a thorough estate plan is essential. An estate plan ensures that your needs, your family’s needs and financial goals are met during your lifetime and upon your death. A thorough and comprehensive plan should include a last will and testament, health care proxy, living will and power of attorney. For some clients the creation of a trust is also practical. Through the creation of a last will and testament and/or a trust, you can establish how your assets will be distributed upon your death.

Additionally, you can ensure that the financial needs of your children or disabled beneficiaries are met after you pass away by establishing trusts for their benefit. By creating a health care proxy, you can designate a succession of individuals to make health care decisions on your behalf, if and only if you are incapable of making them on your own. An estate plan would also include the creation of a power of attorney, through which you can designate someone to handle your financial matters in the event you become incapable of doing so.

Once you have taken the time to create your estate planning documents, you must properly store and protect these original documents. This is particularly important with regard to your power of attorney since many banks and financial institutions require the original signed document. Additionally, the executor of your last will and testament must file the original document with the Surrogate’s Court. It is important to remember to not remove the staples from your original last will and testament.

When deciding where to keep your documents, you should consider who will be acting as your agent, trustee or executor. It is important that you keep your documents in a place where your named agent can easily find and access them. It is not recommended to keep your documents in your safe deposit box. Banks have strict rules about who they allow to open and access safe deposit boxes. This is especially problematic should you become incapacitated or upon your death, since you may be the only one with access to the box.

While some people believe that having a jointly owned safe deposit box will solve this problem, banks have been known to freeze access to safe deposit boxes even when there is a joint owner. If the bank does not allow access, your agent will need a court order to open the box and locate the documents. The most accessible place to keep your documents is in your home or office. It is important that you tell the individuals you name as your agents where your documents are located. The best way to protect your documents from damage is to keep them in a fireproof and waterproof box. However, if you choose to use a safe, make sure that your trusted agents have the safe lock combination.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

Chronic Medicaid is the program that covers nursing home care.

By Nancy Burner, ESQ.

Nancy Burner, Esq.

When someone enters a nursing facility, an application for Chronic Medicaid may be appropriate. The average cost of a nursing facility on Long Island is $15,000 per month. This type of cost would exhaust assets very quickly in most cases.

Chronic Medicaid is the program that covers nursing home care. Medicaid is a needs-based program, which means there are resource and income requirements that must be met.

For 2017, an individual applying for Chronic Medicaid can have no more than $14,850 in liquid nonqualified assets, an unlimited amount of retirement assets so long as the applicant is taking a monthly required distribution and an irrevocable prepaid funeral trust. The applicant may keep no more than $50 per month in income.

Chronic Medicaid has a five-year look-back. The look-back refers to the period of time that the Department of Social Services will review your assets and any transfers that you have made. To the extent that the applicant has made transfers or has too many assets in their name to qualify, they will be ineligible for Medicaid. If the applicant gifted or transferred money out of his or her name in order to qualify for Medicaid, the Department of Social Services will total the dollar amount of gifts and for each approximately $12,811 that was gifted, one month of Medicaid ineligibility is imposed.

For example, if an individual gifted away approximately $50,000 within the five-year time period, the Department of Social Services will impose a four-month penalty. It is also important to note that the ineligibility begins to run on the day that the applicant enters the nursing home rather than on the day that the gift was made.

If the applicant entered the nursing home in September, the four-month penalty would run for September, October, November and December. Medicaid would pick up starting in January and the applicant would be responsible for the nursing home bill from September through December. If the applicant exceeds $14,850 in liquid assets, there are certain planning mechanisms that can be used in order to qualify the applicant for Chronic Medicaid benefits. One of those mechanisms is establishing an irrevocable pre-need funeral. New York State law mandates that pre-need burial trusts for applicants or recipients of Medicaid be irrevocable.

This means that the prearrangement may not be canceled prior to death nor can funds be refunded if the actual funeral costs are less than then funded agreement. Thereby, an individual with a revocable agreement would have to convert it to an irrevocable agreement if they were to require Medicaid in the future.

The Medicaid applicant is also permitted to set up pre-needs for a spouse, minor and adult children, stepchildren, brothers, sisters, parents and the spouses of these persons. The timing of when these pre-need funeral trusts are established can be crucial to the Medicaid application.

It is important to note aside from the irrevocable pre-need there are other exempt transfers that can be used to qualify an individual for Chronic Medicaid. Transfer of assets to a spouse in an unlimited amount, transfer of the primary residence to a caretaker child, transfer of assets to a disabled child and transfer of the primary residence to a sibling with an equity interest are exempt transfers used to qualify an individual for Chronic Medicaid. Even when there are no exempt transfers, there is last minute planning that can be accomplished that could save approximately half of the remaining assets.

It is crucial to consult an elder law attorney in your area as soon as possible in order to preserve the maximum amount of assets.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office. For more information, call 631-941-3434 or visit www.burnerlaw.com.

Many boomers plan on using their assets to make their golden years golden.

By Linda M. toga, Esq.

Linda M. Toga, Esq.

THE FACTS: My husband and I are in our sixties and have three grown children. All were given the same opportunities growing up, but they did not all take advantage of those opportunities or make wise decisions about their futures. Our two daughters are financially secure and doing very well. Our son, however, has struggled and we expect will continue to struggle to make ends meet his entire life.

My husband and I have accumulated significant assets over the years. We have been generous to our children and have made an effort to treat them all the same despite the differences in their financial well-being.

Despite this fact, my son seems to be under the impression that because he needs more, he is entitled to more. He has made comments on a number of occasions suggesting that since we have the means to make his life easier, we should do so. It is clear that he expects that we will be leaving him a sizable inheritance, perhaps even more than we leave our daughters.

We are bothered by these comments for a number of reasons, not the least of which is that my husband and I are planning on using our hard earned money to travel and, if needed, to cover our health care costs. While we fully expect that all of our children will inherit some money from us, I do not believe that we will be leaving any of them substantial assets.

THE QUESTION: How do we make this clear to our son who seems to think he will see a windfall when we die?

THE ANSWER: You and your husband are not alone in having accumulated significant assets that you hope to spend on yourselves. Many boomers benefited by parents who were conservative savers and cautious spenders. Consequently, these parents often accumulated more wealth than they spent and passed that wealth on to their boomer children.

The boomers, on the other hand, may not have been such conscientious savers. Even if they were, they are finding that they are living longer, may need more money for health care and often believe that they need not leave substantial assets to their children since they did so much for them during their lives.

Like you and your husband, many boomers plan on using their assets to make their golden years golden. That is your right. You earned it. You can spend it. However, if you do not want your son to be surprised or resentful when he does not inherit the kind of money he may expect will be coming his way, the best thing to do is to tell him outright.

Perhaps you can share with him the choices you made over the years that resulted in having a significant nest egg. Then tell him how you hope to spend your hard earned money on yourselves while you enjoy a long and healthy life.

You may discover that the comments he has made about a large inheritance were made in jest and that he isn’t really counting on a windfall. That would be the best scenario.

Even if he expresses disappointment and/or anger, you and your husband should feel better about the fact that you were open and honest with him. He can ignore what you say or he can use what you tell him to better plan for his future. In either case, having the conversation will ensure that when you and your husband pass away, he is not blindsided.

Linda M. Toga provides personalized service and peace of mind to her clients in the areas of elder law, estate administration and estate planning, real estate, marital agreements and litigation. Visit her website at www.lmtogalaw.com or call 631-444-5605 to schedule a free consultation.

A trustee must put the interests of the trust beneficiaries before their own

By Nancy Burner, ESQ.

Nancy Burner, Esq.

If you have been named as a trustee of someone’s trust, you may be wondering what you are supposed to do. It is important that the trustee understand his or her duties and responsibilities. The most important thing to remember as a trustee is that the trust assets are not your assets. You are safeguarding them for the settlor and/or beneficiaries, who will receive them after the settlor dies.

As a trustee, you stand in a “fiduciary” role with respect to the beneficiaries of the trust. As a fiduciary, you will be held to a very high standard. The trustee must read the trust document carefully, upon acting initially and when any questions arise. The trust is the road map and the trustee must follow its directions in administering the trust. A trustee should be aware that failing to abide by the terms of the trust document and mismanaging the assets can have serious financial repercussions for the trustee personally such as forfeiture of commissions and surcharge.

This very issue came up in the recent Suffolk County Surrogate’s Court case of Accounting Proceeding the Schweiger Family 2013 Irrevocable Trust decided on Sept. 7, 2017.

The subject trust stated that during the lifetime of the settlor, the trustees in their sole discretion may pay the net income to or for the benefit of the settlor’s beneficiaries or accumulate such income. With respect to principal, the trustees were given the discretion to pay so much of the principal to or for the benefit of the settlor’s beneficiaries. The trust did not require equal principal distributions and same may be made to any or all of the settlor’s beneficiaries.

Distributions made to any beneficiaries during the settlor’s lifetime shall be considered as advancements in determining the beneficiary’s respective share, unless waived by the remaining nonrecipient beneficiaries in writing. The trustees had no authority to pay principal to the settlor.

Despite the language in the trust document, the trustees made distributions to themselves and to individuals that were not beneficiaries, namely the settlor, their children/grandchildren and the spouse of one of the trustees.

In addition, the trustees indicated in their accounting that several of the distributions that were made to themselves as “per settlor’s request.”

After a review of the facts and the language of the trust document, the court held that even if the distributions to the trustees were at the settlor’s suggestion, those distributions were either impermissible gifts of trust assets by the settlor or distributions that the trustees should have assessed against their respective shares as advancements.

With respect to commissions, the court held that intentionally making distributions to individuals who were not beneficiaries of the trust is, in and of itself, a basis to deny commissions. Further, with respect to their self-dealing, either the trustees were in fact aware of the language regarding offsetting advance distributions and chose to disregard it or they were grossly negligent in their failure to seek professional advice to assist them in understanding the duties and responsibilities associated with being trustees. In the end, the trustees were surcharged approximately $230,000 for their self-dealing and failure to abide by the terms of the trust document.

The take away from all of this is that a trustee must follow the terms of the trust instrument and put the interests of the trust beneficiaries before their own. If this is not done the trustee is at risk of personal liability for any breach of duty in the form of denial of commissions or surcharge.

In addition, if you are the trustee of a Medicaid-qualifying irrevocable trust and fail to abide by the terms of the trust, not only do you run the risk of denial of commissions or surcharge, but you can also nullify any protections that the trust provides to the assets held by the trust. This would make all of the assets in the trust be considered an available resource when determining Medicaid eligibility for the settlor and could result in a denial of Medicaid benefits.

With a trustee’s personal liability at stake, it is advisable to retain an attorney to provide advice regarding the trustee’s fiduciary duties and obligations in administering a trust.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

A pet trust is effective immediately upon your death whereas a will can take months to execute.

By Linda Toga

Linda Toga, Esq.

THE FACTS: My mother has a dog, Fido, who means the world to her. When it comes to Fido, money is no object. She is very concerned about what will happen to Fido when she dies. Not only does she worry about who will care for Fido but also about who will pay for Fido’s care.

THE QUESTION: Should these issues be addressed in her will?

THE ANSWER: While the long-term care of Fido can be addressed in her will, your mother needs to make arrangements for Fido’s care for the period immediately following her death because the provisions of her will are not effective until the will is probated. That could take some time.

I always suggest that pet owners arrange in advance for someone to take care of their pet in the event they are unable to do so either because of disability or death. It is important that a caregiver is identified and is ready and willing to take the pet on relatively short notice. These temporary arrangements need not be in writing unless the owner feels that people are going to fight over who will care for the pet.

For example, if you and your siblings agree with your mother that Mary will take care of Fido, there is no need to put the arrangement in writing. However, if all of you want to take care of Fido, your mother should put her wishes in writing to avoid conflicts.

As for the long-term care of Fido after your mother’s passing and the cost of that care, I suggest that your mother include in her will a pet trust. When thinking about the provisions to include in the pet trust, your mother should not only consider who will care for Fido for the rest of his life but also whether the appointed caregiver has the resources to cover the costs associated with pet ownership.

Even if money is not an issue for the caregiver, your mother should confirm in advance that the caregiver’s living arrangements are suitable for Fido. Some apartment buildings and residential communities do not permit residents to own pets. If the caregiver of choice lives in such a community, or lives in a setting that is not large enough for Fido, your mother should consider naming someone else to adopt Fido after her death.

Once she has settled on a caregiver, your mother should think about the types of care she wants Fido to receive after she is gone. For example, does she want Fido groomed once a month or to have his teeth cleaned three times a year? Does she want Fido to be fed certain types of food? Does Fido suffer from any ailments that require medication or close monitoring? If so, these things should be addressed in the pet trust. If your mother has been using the same groomer and vet for years, she may want the caregiver to continue using the same providers. This is particularly important if Fido is receiving any specialized care or treatment. If this information is not included in the pet trust itself, your mother definitely should provide this information to the caregiver in a letter.

While the reason for including a pet trust in her will is to ensure that Fido will be cared for after she dies, it can also serve as a vehicle for providing the caregiver with instructions with respect to the handling of Fido’s remains after he dies. This information is important and useful to the caregiver who will certainly want to honor your mother’s wishes.

In addition to setting forth in the pet trust the name of the caregiver and the type of care she wants Fido to receive, both during his lifetime and upon death, your mother will need to allocate a certain amount of money to the trustee of the pet trust.

The job of the trustee is to distribute the funds in the trust to the caregiver as needed to be used for Fido’s benefit. The money will be used to pay for Fido’s food and care, but your mother can also allocate some of the money in the trust directly to the caregiver in recognition of the time, effort and responsibility he/she assumed by caring for Fido. If she wants, your mother can name the caregiver as trustee of the pet trust. She need not name two different people for these roles.

A final decision that your mother will have to make in connection with the pet trust is what happens to any of the funds left in the trust after Fido dies. Many people who have a pet trust direct that any money left in the trust after the death of their pet goes to the caregiver. Another popular arrangement is for the money to be donated to an organization that cares for abandoned and/or abused animals. Of course, your mother can also have the funds left in the pet trust divided between you and your siblings. Regardless of how she wants the funds distributed, it is important to include her wishes in the pet trust.

In light of the number of issues, your mother should discuss if she wants to create a pet trust, and the fact that it will be part of her will, with an experienced estate planning attorney. That is the best way to ensure that Fido will be cared for in accordance with her wishes.

Linda M. Toga, Esq. provides legal services in the areas of estate planning, probate, estate administration, litigation, wills, trusts, small business services and real estate from her East Setauket office.

There are many benefits to naming a minor as beneficiary of a tax-deffered retirement account.

By Nancy Burner, ESQ.

Nancy Burner, Esq.

Many of our clients have retirement assets held in a traditional IRA, 401K, 403(b) or other similar plan. It is important to periodically review the beneficiary designations on these types of plans. A review should confirm that the institution still has the proper designations on file, the clients’ wishes are being followed, the designations fit into the larger estate plan of the client and that the best interests of the beneficiaries are taken into account. This is of special concern if the beneficiaries are grandchildren or other minors.

There are certain benefits to leaving retirement assets to a minor who is a much younger beneficiary than the original account holder. When you leave retirement assets to a nonspouse, the beneficiary has the right to take it in an “inherited IRA.”

The beneficiary of an inherited IRA must start taking distributions the year after the death of the original account holder. These distributions are taken as a “stretch,” meaning they are determined by the life expectancy of the new IRA beneficiary. In that case, the account can grow tax deferred over a much longer life expectancy.

The rule of thumb is that the account will be worth approximately 30 times its value if distributions are taken over the life expectancy of a grandchild. For example, suppose you name your grandchild as beneficiary of an IRA account with a $100,000 balance. If your grandchild takes distributions based upon her life expectancy each year, then the account could be worth $3,000,000 over her lifetime. This is one of the great benefits of naming a minor as beneficiary of a tax-deferred retirement account.

The problem is that you cannot achieve the benefit of the stretch if you name a minor directly as the beneficiary of any account — you must name a trust for the benefit of the minor.

Since she is not an adult, the minor will be unable to take the distributions as required beginning the year after your death. The only way to access the account is for the court to appoint a guardian for the property of the child, usually the parent. First, this will be a costly and unnecessary proceeding. But the result is even worse.

The court will direct the guardian to distribute the entire IRA and pay the income tax. The income tax will be based upon the parents’ income if the child is under 14 years of age, also known as the “kiddie tax.”

In addition, the monies that are left after paying the income tax will be deposited in a bank account earning very little interest. If that isn’t bad enough, the account will be turned over to the child upon attaining the age of 18. This will obviously impact the child’s financial aid when he or she applies for college. This is a financial disaster. In addition to retirement accounts, you do not want to name minors directly as beneficiaries on IRA accounts, annuities, insurance policies, bank accounts or any other account. Any and all distributions for a minor should be distributed to a trust that is drafted for the benefit of the child.

The trust should be created as part of the estate plan, either through a last will and testament or in an inter vivos trust. Providing for the beneficiary’s share to go into a trust will ensure the benefits of inheriting a retirement asset are received.

The beneficiary can get the stretch on the account and the asset will not need to be held by the court. However, be certain that the trust you are naming for the benefit of the minor is drafted for the purpose of receiving retirement accounts; all trusts are not created equal in this respect. A trust must be properly drafted and meet certain requirements set by the IRS in order to accept the IRA distribution and receive the benefits described above.

Before naming a beneficiary on an account, one should check with the institution holding the account. Each plan has its own individual rules regarding the designation of beneficiaries. For example, the New York State Teacher’s Retirement system has certain benefits for which you can name a trust as beneficiary, while other benefits, including pensions, do not allow this type of beneficiary. Retirement savings can be the largest asset one leaves behind. Being sure it is properly designated can protect the best interests of your beneficiaries long after you are gone.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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