Legally Speaking

The older you are when you buy a long-term insurance policy, the higher the premium. Stock photo

By Linda Toga, Esq.

Linda Toga, Esq.

THE FACTS: I am in my late fifties and am thinking about purchasing a long-term care insurance policy. 

THE QUESTION: What are some of the factors I should consider before I purchase a policy?

THE ANSWER: Long-term care insurance can be very confusing and may not be the best option for some people. Although about 50 percent of people who reach the age of 65 will likely need long-term care during their lifetime, the best way to pay for that care depends on a number of factors, not the least of which is the size of your nest egg and how much of your savings are being used for your current living expenses. 

If you are not living off your savings, and those savings are significant, you may opt to private pay for your care if/when it is needed. If that is the route you decide to take, it would be wise to segregate the money you may need for long-term care from the funds you use for your daily living expenses. That way if you are admitted to a nursing home, the funds will be available to cover the cost of your care.

If you do not have significant savings or the income needed to cover the cost of long-term care, you may be eligible for Medicaid benefits. However, Medicaid is only available to those who can establish that they are “impoverished.” While Medicaid planning strategies may increase your chances of being eligible for government benefits, if you have made gifts or otherwise disposed of your assets through “uncompensated transfers,” you will likely be required to pay for your own care for a period of time before you become eligible.

If you purchase long-term care insurance, the benefits paid by the insurer could pay for your care during the penalty period. If you are still institutionalized at the end of your benefit period, Medicaid may pick up the tab.  

If you do not feel comfortable with the idea of private paying what could very well be in excess of $450 a day for your care, and do not believe you will be eligible for Medicaid, long-term care insurance may be an option for you. However, insurance is not cheap. Policies can run as much as $3,000 or more per year. The older you are when you buy a policy, the higher the premium. That being said, if you can afford the coverage, it may be the best way to go. 

When shopping for a policy, look at the daily benefit amount, the period for which benefits will be paid, the waiting period between when you file a claim and when benefits will begin and the type of coverage that is provided (home care, institutional care, care provided by family members, etc.). Since the cost of care is likely going to increase, you should buy a policy with an inflation rider. 

If you do not want to purchase a traditional long-term care policy, you can look into hybrid policies that combine life insurance with long-term care coverage. Unlike traditional policies that only pay benefits if you need long-term care, hybrid policies guarantee a death benefit regardless of whether you are institutionalized. In some cases it is easier to qualify for a hybrid policy than a traditional long-term care policy. However, you will pay more for a hybrid policy because of the flexibility it provides. 

When shopping for long-term care insurance, you should talk to an independent insurance agent who sells policies from more than one insurer. You should also discuss your options with an experienced estate planning attorney who can advise you as to whether long-term care insurance is the best option for you based upon your overall estate plan.

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.

Properly drafted prenuptial agreements ensure that assets ... remain separate.

By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS: I am widowed, have two grown children and will soon be getting married to Joe. Joe also has children from his first marriage. We are both financially independent and have agreed that our assets will remain separate. When I die, I want my children to receive the bulk of my assets.

THE QUESTION: Should I ask Joe to sign a prenuptial agreement? 

THE ANSWER: The quick answer to your question is Yes. Properly drafted prenuptial agreements ensure that assets that are held by one spouse at the time of the marriage remain separate and that marital assets are only those assets that the spouses intentionally commingle. 

In other words, if, at the time of the marriage, you have a brokerage account worth $200,000, that account will not be subject to equitable distribution in the event the marriage terminates in divorce unless you add Joe’s name to the account.

However, if you choose to use some of that money to purchase a house with Joe, the assets you invested in the house will no longer be deemed your separate property and will be subject to equitable distribution in the event of a divorce. You and Joe need to discuss how you want your separate assets to be treated in the event of a divorce and have a prenuptial agreement prepared that reflects those wishes.  

In addition to addressing how your separate property will be treated, your prenuptial agreement should address how your retirement accounts and pension plans are to be handled. Some such accounts and plans require the account holder or the plan participant to obtain the consent of his/her spouse if that spouse is not going to be the beneficiary on the account/plan. 

If you have such an account or pension plan and you want to name your children as the beneficiaries, you will want Joe to waive any rights he may have to the assets held in the account or managed by the plan. 

While most people understand the importance of prenuptial agreements in connection with divorce, such agreements are equally, if not more important, when one of the spouses dies. That is because a well-written prenuptial agreement addresses the rights of a surviving spouse to share in the estate of his/her deceased spouse. 

In New York, spouses have priority over other family members to administer the estate of a person who dies without a will. That means that if you do not have a will at the time of your death, the Surrogate’s Court will give Joe, and not your children, priority to become the administrator of your estate. 

In addition to having the right to handle the estate of an intestate spouse, under the intestacy statute that governs the estates of people who die without a will, the surviving spouse is entitled to the first $50,000 of the testamentary estate and 50 percent of the balance of the estate. In your case, Joe would be entitled to more than half of your estate, leaving your children with less than they would be entitled to if you had not remarried. 

Even if you have a will at the time of your death, Joe, as the surviving spouse, can exercise his right of election. That means that he can claim one-third of almost all of your assets regardless of whether you owned the assets jointly with another person or designated other people as beneficiaries via a beneficiary
designation form. 

In other words, Joe would be entitled to one-third of an account you owned jointly with your children and one-third of your pension or retirement plan. To ensure that your estate is handled by the person of your choosing and that your assets pass to your intended beneficiaries regardless of whether you have a will, it is important to have Joe sign a prenuptial agreement waiving his spousal rights. The waiver should address both the administration of your estate and the right of election. Since prenuptial agreements are generally reciprocal, you should be prepared to waive the same rights in the prenuptial agreement as Joe. 

If you decide a prenuptial agreement is the best way to proceed, you should retain an experienced attorney well in advance of your marriage to prepare the agreement. To ensure that the prenuptial agreement you sign is enforceable, Joe should have separate counsel so that he cannot argue that he did not understand the rights he was waiving or the consequences of signing the agreement. 

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.  

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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.  

By Linda M. Toga, Esq.

Linda Toga Esq.

THE FACTS: Many of my friends have told me that I should transfer my house to my son and retain a life estate.  

THE QUESTIONS: What are the pros and cons of doing that?

THE ANSWER: People often transfer their property to their children and create life estates because they believe it is the best way to increase their chances of being Medicaid eligible or to avoid probate. In most cases, there are better ways to achieve those goals. 

Before the Medicaid look-back period was changed to five years for all nonexempt transfers, life estates were a very popular part of Medicaid planning. However, since the look-back period is now the same whether you transfer a residence and retain a life estate or put the residence in an irrevocable trust, there is no advantage to creating a life estate when it comes to the look-back period. 

The downside of a life estate from a Medicaid planning perspective is the fact that, if the house is sold during your life time, you are entitled to a portion of the proceeds from the sale. The percentage of the proceeds allocated to you would be governed by life expectancy tables and is surprisingly large. 

For example, if you, as the life tenant, are 80 years old when your $300,000 house is sold, you will be entitled to approximately $130,000 of the proceeds. In the context of a Medicaid application, that $130,000 will be deemed an available resource and may result in a denial of benefits. This is true even if you created the life estate more than five years before you apply for Medicaid. 

If, on the other hand, you transferred the house into an irrevocable trust, even if the house was sold, the proceeds would be fully protected in the trust after the five year look-back period. 

With respect to avoiding probate, if you transfer your house to your son during your lifetime and create a life estate, the house will not be subject to probate when you die, the value of the house will not be included in your gross taxable estate (although the value of the transferred share may be subject to federal gift tax) and you will continue to enjoy any real estate tax exemptions that were applicable to the property before you deeded the house to your son. 

However, if the house is in your son’s name, his creditors can attach liens or judgments to the property. If you create a life estate, you will be required to file a gift tax return reporting the gift of the property to the IRS. 

Finally, by creating a life estate you may be subjecting your son to a capital gains tax liability. That is because your son will not get the step up in basis when you gift him the house that he would get if he inherited your house after your death. 

For example, if you paid $150,000 for the house 20 years ago, your son’s basis in the house if you gifted it to him would be $150,000. If he sells the house after you die, he will have to pay capital gains tax on the increased value of the house. 

If, on the other hand, he inherits the house after your death, he will get a step up and his basis in the house will be the date of death value. Unless he holds on to the house for an extended period of time, it is unlikely that your son will have any capital gains tax liability. 

If your goal in creating a life estate is to avoid probate, a better alternative to a life estate is a revocable trust. Although transferring your house into a revocable trust does not provide protection from estate taxes, it does avoid the need for filing a gift tax return, it protects the house from your son’s creditors and it will allow your son to get a step up in basis when he inherits the house after your death. 

There are clearly many issues to consider when deciding whether a life estate, revocable trust or irrevocable trust offers the best solution for you. The cost of each option is also a consideration. Since creating a life estate can have far-reaching consequences, it is important to discuss your goals and your options with an experienced attorney before taking action. 

Linda M. Toga, Esq. provides personalized service and peace of mind to her clients in the areas of 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.

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By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS:   I want to be sure that I do not receive end-of life-medical treatment that will do little other than prolong my life. 

THE QUESTIONS: Is the document in which I can state my end-of-life wishes called a living trust or a living will?

THE ANSWER: The document in which you can memorialize your wishes with respect to the medical treatment to be administered or withheld when you are near death is called a living will. 

A living will differs from a living trust, also known as a revocable trust, because a living will has nothing to do with how your assets are handled during your life or distributed upon you death. 

Instead, a living will provides the person you name as your agent in your health care proxy, your next of kin and/or your health care provider with important information about how you would like to proceed if your doctor has determined that your condition is likely to cause death within a relatively short time and you are unable to express your wishes about your medical treatment.  

A properly drafted and executed living will can also serve as clear and convincing evidence of your wishes in the event a court is asked to decide whether or not your health care provider must honor your wish to withhold medical treatment. 

A living will gives you the opportunity to put into writing what types of medical treatments, procedures and medications you do not want if you have suffered from a significant loss of mental capacity and you cannot eat or drink without assistance or you have an irreversible or incurable medical condition with no likelihood of improvement.

For example, in your living will you can state that you want medical treatment withheld if you suffer from dementia or some other form of mental impairment and there is no reasonable likelihood that such treatment will restore your ability to be oriented and interact with your environment. 

You can direct your health care provider to withhold treatment if you lack mental capacity and need a feeding tube. You can also state in a living will that treatment should be withheld if you exhibit significant mental impairment combined with a condition that is likely to cause death in a relatively short time, as determined by your doctor. 

Examples of the types of life-sustaining treatments and procedures you may want withheld include cardiopulmonary resuscitation, dialysis, artificial hydration, artificial nutrition (feeding tubes), mechanical respiration, antibiotics, experimental medications and surgical procedures. Under many circumstances, these sorts of treatments and procedures serve to prolong life but do not necessarily have any impact on a patient’s underlying medical condition. 

While asking that such life-sustaining treatments be withheld, living wills generally direct the health care provider to the administration of pain medication and to take the steps necessary to keep the patient comfortable. 

Since a living will is a document in which a person essentially rejects life-sustaining treatments, sometimes referred to as “heroic measures,” people who have a living will may effectively hasten their own death. As such, a living will is clearly not appropriate for people who want all possible measures to be taken to keep them alive. 

Because of the moral and religious issues associated with a living will, it is likely the most personal and emotionally charged estate planning document you can sign. It is, therefore, extremely important that you give serious thought to your options when deciding if a living will is right for you and discuss your wishes with an attorney who has experience preparing living wills. 

Linda M. Toga, Esq. provides personalized service and peace of mind to her clients in the areas of 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.

When a property is owned by joint tenants with survivorship, the interest of a deceased owner automatically gets transferred to the remaining surviving owners. Stock photo
Linda Toga, Esq.

By Linda M. Toga, Esq.

THE FACTS: After my husband died, I remarried a wonderful man named Joe. Joe had been married before and had 3 children with his first wife. Since Joe moved into my house and was helping to pay the carrying costs, I decided to add Joe as an owner on the deed to my house. Shortly after Joe’s name was added to the deed, he died suddenly without a will.

His grown children are now claiming that they have an ownership interest in the house based upon the intestacy statute. They told me that the statute provides that when a married person dies without a will and is survived by a spouse and children, that his assets are divided between the spouse and children.

THE QUESTION: Are they correct?

THE ANSWER: Although the children are correct with respect to the intestacy statute, the statute may not apply to the house. Whether it does, and whether Joe’s children own a share of your house will depend on the language used when you added Joe to the deed.

HOW IT WORKS: Turning first to the intestacy statute, the statute applies to assets that are owned by the decedent alone. In other words, bank accounts and real property on which the decedent is the sole owner will pass pursuant the intestacy statute. On the other hand, assets that the decedent owned jointly with another person, assets that are in trust and assets for which a beneficiary designation form has been signed do not pass pursuant to the intestacy statute. Instead, they pass by operation of law to the joint owner or named beneficiary.

With respect to your house, how Joe was identified in the deed by which you gave him an ownership interest in your house will determine whether his children now own a share of your house. If Joe was named as a joint tenant with rights of survivorship, as a tenant by the entirety or simply identified as your spouse, you are the sole owner of the property. Under these circumstances, the house is not part of Joe’s intestate estate and, therefore, is not subject to the intestacy statute. While you will likely have to share with his children other assets that Joe may have owned individually at the time of his death, his children are not co-owners of your house.

If, however, you added Joe to your deed as a co-tenant, creating a tenancy in common, you may find that you only own 50 percent of your house.

That is because co-tenants can each dispose of their share of property as they please. When a co-tenant dies without a will, his share in the property in which he had an ownership interest will pass under the intestacy statute. Pursuant to the statute, the surviving spouse is entitled to the first $50,000 of the estate and must then split the balance of the estate 50/50 with the decedent’s children.

If Joe had sufficient assets in his name, you may be able to satisfy the children’s share by distributing to them funds equal to their 50 percent share. However, if Joe’s interest in the house is the only asset he owned at the time of his death, and his interest is worth more than $50,000, you are going to have to buy out his children with your own funds if you want sole ownership of the house.

Although your motive for adding Joe to your deed was admirable, I am sure you had no idea that doing so could result in having his children as co-owners of your house. In other words, you did not know what you did not know. While I hope that the language in the deed is favorable to you and that Joe’s children are mistaken as to their ownership interest in the house, in the future, the best way to avoid costly, unintended consequences when signing documents is to consult an experienced attorney before you sign.

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

When a person dies without a will, the law determines who the heirs of the estate are. Stock photo

By Linda M. Toga, Esq.

Linda Toga

THE FACTS: After my mother’s death I was approached by a man I will refer to as Joe who claims that my mother was his biological mother as well. According to Joe, before she and my father married, my mother gave birth to Joe and immediately put him up for adoption. Although Joe admits that my mother rejected his attempts to develop a relationship with her during her lifetime, Joe now claims that since my mother died without a will, he is entitled to a share of my mother’s estate.

THE QUESTION: Is Joe correct? Will my siblings and I have to share our inheritance with him?

THE ANSWER: Fortunately for you, Joe is wrong.

HOW IT WORKS: Generally a child who is adopted out does not have the right to an inheritance from the estate of his birth mother. The order of adoption generally relieves the birth parents of all parental duties and of all responsibilities for the adopted child. At the same time, the order extinguishes all parental rights of the birth parent to the estate of a child who has been adopted, including the right to serve as administrator of that child’s estate and the right to inherit under the intestacy statutes.

Although Joe seems to be relying upon the fact that your mother died without a will and, therefore, did not explicitly disinherit him, his reliance is unwarranted. That is because the New York State intestacy statute and the domestic relations law govern how your mother’s estate should be distributed.

While the child of a decedent is generally entitled to a share of his parent’s estate if the parent dies without a will [Estates, Powers and Trusts Law §4-1.1 (a)(1) and (3)], the rights of an adopted child in the estate of a birth parent are governed by subsection (d) of the statute. It provides that the Domestic Relations Law, specifically Domestic Relations Law §117, controls.

Domestic Relations Law §117 (1)(a) and (b) provide that an order of adoption relieves the birth parent of all parental duties and responsibilities and extinguishes any rights the parent would otherwise have over the adoptive child’s property or estate. At the same time, the order terminates any rights of the adoptive child to an inheritance from the birth parent.

Although there are some exceptions to these laws, the logic behind terminating inheritance rights is to prevent people in Joe’s position from enjoying a windfall by inheriting from both his birth and adoptive parents and to prevent a birth mother from receiving an inheritance from a child that she did not support during her lifetime.

Under the circumstances, the only way Joe could inherit from your mother’s estate would be if she chose to name him as a beneficiary in a will or a trust or on a beneficiary designation form. If Joe decides to pursue a claim against your mother’s estate, you should be able to defeat the claim by providing the court with evidence that Joe was legally adopted as a child.

It would be wise to retain an attorney experienced in estate administration to assist you with this matter.

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.

There are a number of questions that must be answered before a determination can be made. Stock photo

By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS: Approximately five years ago, my father remarried and he and his second wife, Mary, purchased a house together. At the time my father told me that he alone paid for the house and that his plan was for the house to pass to me and my sister when he died. My father is now very ill and suffers from advanced Alzheimer’s. He never updated his will, which leaves his entire estate to me and my sister.

THE QUESTION: What is going to happen to the house when he dies? Will my sister and I inherit the house?

THE ANSWER: What happens to the house will depend on a number of factors, including how title is held and whether Mary waived her marital rights in your father’s estate.

HOW IT WORKS: Generally when a married couple buys real property, the property is held jointly as “tenants by the entirety” unless the deed states otherwise. That means that upon the death of the first spouse, the surviving spouse owns the entire property outright. There is no need to have a new deed prepared transferring the property into the name of the surviving spouse since the transfer is automatic “by operation of law.” The surviving spouse need not take any action for ownership of the property to be transferred.

If, however, the deed states that the parties own the property as “tenants in common” or states that the parties each own a specific percentage of the property, the surviving spouse only owns the percentage of the property set forth in the deed. If your father owned the property with Mary as tenants in common, the share of the property owned by your father will pass under his will.

As I mentioned above, how title is held between spouses only addresses part of the question. What is going to happen to the house may also depend on whether Mary waived her marital rights and, if she did not, whether she chooses to exercise her right of election.

Mary may have signed a waiver stating that she was not going to enforce the rights she would have to handle your father’s estate and to receive a one-third share of that estate. Absent such a signed waiver, Mary may exercise her right of election and would be entitled to approximately one-third of your father’s entire estate, regardless of the terms of his will or the manner in which he held property.

For example, if your father owned the property in question jointly with you rather than Mary, and the property was valued at $300,000, Mary could demand that the estate satisfy her right of election by turning over to her assets with a value of $100,000.

Even if the property is held jointly with Mary so that she becomes the sole owner upon the death of your father, Mary can still demand other assets from your father’s estate if the value of the property passing to her by operation of law is not equal to one-third of your father’s total estate. Whether she makes such a demand will likely depend on her own financial health, the size of your father’s estate and her relationship with your father.

Even when there is no waiver, it is not unusual for a surviving spouse to honor the wishes of the decedent and decide against exercising her right of election.

Clearly, there are a number of questions that must be answered before a determination can be made about what will happen to the house when your father dies. Additional questions will arise if Mary decides to exercise her right of election. Under the circumstances, you should seek the expertise of an attorney with experience in estate administration to assist you when the time comes.

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

The best way to defray the cost of a college education is to open a 529 plan.

By Linda M. Toga, Esq.

THE FACTS: I would like to help defray the cost of college for my grandson, Joe. My daughter and son-in-law are not in a position to pay full tuition, room and board. I don’t want them or Joe to borrow for his education.

THE QUESTION: What is the best way to help out without hurting Joe’s chances of receiving needs-based financial aid?

THE ANSWER: Although there are a number of ways to defray the cost of Joe’s education, including giving him money, giving money to your daughter and son-in-law or paying the college directly, for many people the best way to assist with college expenses is to set up a Section 529 College Savings Plan (a “529 plan”) with Joe as the beneficiary. Your various options are discussed below.

If you want to simply gift money to Joe for his education, you can give him up to $14,000 per year without incurring any gift tax. However, when the college reviews his financial aid application and determines how much Joe should contribute toward his education, they will take any gifts you have given him into consideration. Since students are expected to contribute approximately 20 percent of their savings to their education, the more you give to Joe directly, the less aid he will receive.

If you decide to give money for Joe’s college expenses directly to your daughter and son-in-law, you can gift each of them $14,000 for a total of $28,000 per year. Clearly you can make a larger annual contribution to Joe’s education this way; but, like the funds gifted to Joe, the funds you gift to your daughter and son-in-law will be taken into consideration when calculating any financial aid that may be awarded to Joe. The negative impact of gifting funds to his parents rather than to Joe will be less than the impact of gifts made directly to Joe because his parents are only expected to contribute about 6 percent of their assets to his education.

Paying the college Joe attends directly is an option that avoids any potential gift tax issues on gifts exceeding the $14,000 annual limit. Paying the college directly would allow you to make larger contributions annually to his education; but, this method is not recommended since the money paid directly to the college will be considered as income to Joe. Like gifts to Joe, payments to the college will adversely impact the amount of aid Joe may receive.

In my opinion, the best way to defray the cost of Joe’s college education is to open a 529 plan. Many states, including New York, offer such plans that allow for tax exempt growth on investments so long as distributions from the accounts are used to pay qualified college expenses. Contributions to a 529 plan are subject to gift tax; but, the law allows contributions up to $70,000 to be made in one year as long as the person funding the plan files a gift tax return and applies the contribution over a five-year period.

If you open a 529 plan, you could decide how the funds in the account will be invested and to change the beneficiary in the event Joe decides not to attend college. You could also remove funds from the account for noncollege expenses although such a withdrawal will result in a penalty and tax liability.

Although the income on the investments in the plan will be considered Joe’s income, increasing the amount he will be expected to contribute to his education, it is only assessed at 50 percent as opposed to other income that is assessed at 100 percent so the negative impact is greatly reduced.

In some states you can avoid the negative impact of increasing Joe’s income if you transfer the 529 plan to your daughter before Joe applies for aid. Unfortunately, this option is not available in New York where transfers are prohibited unless the account owner dies or there is a court order. For this reason, it may make more sense if you simply contribute funds to a 529 plan opened by your daughter.

Regardless of the method you decide to use to defray the cost of Joe’s education, it is worth noting that gifts made to Joe or his parents after January of Joe’s junior year of college should not have any impact on his ability to get financial aid. That is because by then Joe will have already filed his aid application for his senior year.

Before you make a decision about how to help Joe and his parents pay for his college education, you should not only look at all the options available to you but you should discuss with an estate planning attorney how Joe’s college education should be addressed in your estate plan. You don’t want your estate plan to jeopardize whatever steps you may take during your lifetime to benefit Joe.

Linda M. Toga provides personalized service and peace of mind to her clients in the areas of estate planning and administration, real estate, marital agreements and litigation out of her Setauket office.

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.

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