Attorney At Law

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By Nancy Burner, Esq.

Nancy Burner, Esq.

A Durable Power of Attorney (“DPOA”) is a statutory form that enables a person to empower a loved one or trusted individual to manage finances and property on their behalf. The concept is, even if one lacks legal capacity to handle their own financial and business affairs, their appointed agent will be able to use the document to access bank accounts, sign checks, pay bills, and carry out essential estate planning for Medicaid asset protection purposes. Note that not all powers of attorney are the same, the particular powers that the agent will have will depend on how the document is drafted.

As long-term care, including home care and nursing home care, is not covered by health insurance, many people look to Medicaid as a pay source. Medicaid, however, is a means- based program for which qualification requires an individual prove they have no more than $16,800 in assets (in 2022). Further, there is a 5-year lookback period for nursing home Medicaid. This means that upon application, there is a scrutiny of the prior five years of the financial life of the applicant and their spouse, looking for any assets gifted within the 5 years prior to applying. While there are certain allowable or exempt transfers, all other transfers will result in a “penalty period,” a period of time during which Medicaid will not assist with the costs of care.

Fortunately, there are several exempt transfers that do not incur a penalty period, the most common being a transfer of assets to one’s spouse. Thus, if one urgently needs nursing home care, but has assets above the Medicaid limit, they can transfer assets to their spouse to bring themselves under the resource limit to qualify for Medicaid without penalty. In certain circumstances, assets can also be transferred to individuals other than the spouse,

This is where the DPOA comes into play because if the Medicaid applicant lacks mental capacity, they will not be able to transfer assets. And, contrary to popular belief, a spouse does not have the authority to access the other’s bank accounts or other assets simply because they are married—unless the spouse were a joint owner, they would need a DPOA or be appointed legal guardian by the court, a costly and time-consuming process.

Since the standard statutory form does not include any gifting over $5,000, modifications must be included with additional provisions supplementing the authority granted to the agent. For starters, the document must specifically authorize gifting. In the scenario where assets need to be transferred to the spouse and the spouse is the agent in the document, it must also specify the authority for self-gifting.

While authorizing your agent to gift assets to themselves can be critical to securing Medicaid coverage, it should not be done without careful consideration. Any assets transferred would no longer be governed by the will, trust, or other estate planning documents of that person. Once property is transferred to another person, it is theirs and, while one would hope they would follow the wishes of the principal, it raises the risk that chosen beneficiaries will be disinherited. Choosing an agent that a principal trusts completely to follow their wishes and only do what is in their best interest is a necessary part of this type of planning.

The decision whether to grant the agent the authority to self-gift under a DPOA is not an easy one and there is no “right” answer. On the one hand, allowing the agent to gift assets to themselves may be the only way to quickly qualify for nursing home Medicaid coverage if one lacks the legal capacity to transfer the assets. On the other hand, an agent may never be needed to gift or self-gift because Medicaid is not needed or there are other ways of gaining eligibility.

The moral of the story is to address estate planning with an experienced elder law attorney sooner rather than later to advise on these issues and draft the appropriate DPOA document. There are various strategies by which assets can be protected for Medicaid eligibility while effectively ensuring that assets are left to chosen beneficiaries at the time of death.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

By Nancy Burner Esq.

Nancy Burner, Esq.

Being a Trustee of a trust carries serious responsibilities and trustees are compensated for their time. 

Section 2309 of New York’s Surrogate’s Court Procedure Act sets forth how to calculate the amount of commission. Under the statute, Trustees receive  commissions on the amount of property paid out and annually. However, keep in mind that the trust agreement can override the statute. The creator of the trust (Grantor) and Trustee may agree to a different amount, or the Trustee can waive the right to commissions altogether.

The statute lays out that the Trustee is entitled to a commission of 1% of any trust principal paid out. In addition to the 1% commission on distributions of principal, the following fee schedule sets out the Trustee’s annual commissions: 

(a) $10.50 per $1,000 on the first $400,000 of principal 

(b) $4.50 per $1,000 on the next $600,000 of principal 

(c) $3.00 per $1,000 on all additional principal.

Take the simple example of a trust with $1 million dollars in assets that directs $200,000 be paid out to the beneficiaries upon the Grantor’s death. The Trustee is entitled to a $2,000 commission for the distribution and then $5,200 annually. The statute also provides for reimbursement for reasonable and necessary expenses.

The trustee can choose to collect the commission at the beginning of the year or at the end of the year. But once the Trustee chooses a time they must collect the commission at that time of year every year going forward. Any successor or substitute Trustee must follow the same schedule.

Pursuant to SCPA §2309(3), annual commissions must come one-third from the income of the trust and two-thirds from the principal of the trust. Unless the trust says otherwise, commissions are payable one-third from trust income and two-thirds from trust principal. The only exception is for charitable remainder unitrusts or annuity trusts. In such cases, the commissions are paid out of principal, not out of the annuity or unitrust payments.

When deciding what the Trustee’s commission should be, it is important to keep SCPA 2309(3) in mind. This is especially true when the only asset in the trust is the Grantor’s home. Until the home is sold and the proceeds paid out, the Trustee is not entitled to the 1% commission.  Likewise, if the home is not generating rental income, then the one-third of the trustee’s commission is not payable under 2309. This may not be important if the Trustee is a beneficiary, but there is no incentive for a non-beneficiary Trustee in this situation.

Determining how to calculate the correct commission owed a Trustee can be complicated. Consulting an experienced estate planning attorney can make the process much easier to navigate. These discussions should be had upon creation of the trust as well as when the Trustee starts managing the trust.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

Skilled nursing care is a high level of care that can only be provided by trained and licensed professionals, such as registered nurses, licensed professional nurses, medical directors, and physical, occupational, and speech therapists. 

Skilled care is short-term and helps people get back on their feet after injury or illness. Skilled nursing facilities are residential centers that provide nursing and rehabilitative services to patients on a short-term or long-term basis. Examples of the services provided at a skilled nursing facility include wound care, medication administration, physical and occupational therapy, and pulmonary rehabilitation.

Generally, patients who are admitted to skilled nursing facilities are recovering from surgery, injury, or acute illness, but a skilled nursing environment may also be appropriate for individuals suffering from chronic conditions that require constant medical supervision. If you or a loved one is interested in using Medicare for skilled nursing, though, there are specific admission requirements set by the federal government:

• The individual has Medicare Part A (hospital insurance) with a valid benefit period. The benefit period will start from the date of admission to a hospital or skilled nursing facility and last for up to 60 days after the end of the stay.

• The individual has a qualifying hospital stay. This generally means at least three in- patient days in a hospital.

• The doctor has recommended skilled nursing care for the individual on a daily basis. The care must be provided by skilled nurses and therapists or under their supervision and should be related to the condition that was attended to during the qualifying hospital stay.

• The individual is admitted to a skilled nursing facility that is certified by Medicare. A skilled nursing facility must meet strict criteria to maintain its Medicare certification.

Usually, the skilled nursing care services covered by Medicare include the room charges, provided that it is a semi-private or shared room, meals at the facility, and any nutritional counseling, as well as costs of medication, medical supplies, medical social services, and ambulance transportation. It also covers rehabilitative services that are required to recover from the condition, such as physical therapy, respiratory therapy, and speech therapy.

Medicare generally offers coverage for up to 100 days of treatment in a skilled nursing facility. Note that if the patient refuses the daily skilled care or therapy as recommended by the doctor, then the coverage by Medicare may be denied for the rest of the stay at the skilled nursing facility. Many patients are advised that they will not get the full 100 days of Medicare benefits because they had reached a “plateau” or that they failed to improve. This is known as the Improvement Standard and was a “rule of thumb” used to evaluate Medicare patients. 

Applying the Improvement Standard resulted in the denial of much needed skilled care for thousands of Medicare patients. The denials were based on a finding that there was no likelihood of improvement in the patient’s condition. This standard ignored the fact that the patients needed skilled care in order to maintain their current state of health and to prevent them from deteriorating. More often than not, if the patient was not improving, Medicare coverage was denied. While this standard was widely used, it was inconsistent with Medicare law and regulations.

A court case brought by Medicare beneficiaries and national organizations against the Secretary of Health and Human Services (Jimmo v Sebelius) sought to change this. The plaintiffs argued that even though the term “plateau” does not appear in the Medicare regulations, it is this term that is often used and relied upon to deny coverage. The appropriate standard should be: will the covered services “maintain the current condition or prevent or slow further deterioration,” not whether the individual was showing signs improvement.

As a result of this litigation and the settlement on Jan. 24, 2013, patients should be able to continue receiving services provided by Medicare, even where improvement in the patient’s condition cannot be documented. However, the old standard continues to be used. Patients and their advocates should educate themselves on the correct standard to make sure coverage is not cut prematurely.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

When creating estate planning documents for clients, a common concern is how to protect the beneficiaries of the estate.

When it comes to providing creditor protection for oneself, there are not many estate planning options available, aside from giving assets away. This could result in undesired consequences, such as the loss of ownership of the assets or creating a taxable event. Fortunately, this is not the case for beneficiaries — there are certain planning techniques to provide beneficiaries with creditor protection, and other protections, that one would otherwise not be able to provide for themselves.

The Internal Revenue Code states that if a trust limits the distribution of principal to an ascertainable standard, the trust qualifies as a creditor protected trust. Limiting distributions to the beneficiary for their health, education, maintenance, or support (HEMS) falls within the IRS guidelines of an ascertainable standard that creates creditor protection for the beneficiary. 

While this type of trust may sound restrictive, the trust can essentially be used to maintain the beneficiary’s lifestyle. The principal of the trust can be used to pay for the beneficiary’s schooling, rent, taxes, medical expenses and more. 

Additionally, assets, such as a real property, can be bought directly in the name of the trust, thus protecting the assets immediately upon purchase. Lastly, the beneficiary can be their own trustee of the trust and have the right to withdraw the income generated from the trust, all while still maintaining creditor protected status.

If there is a concern that the beneficiary may want or need access to the trust beyond HEMS distributions, or that the trust may become too burdensome or impractical to manage, the estate planning document creating the trust can provide various ways to either completely undo the trust or to authorize a distribution of principal beyond the beneficiary’s health, education, maintenance, or support.

Aside from creditor protection, there are additional benefits that come with beneficiary trusts. If, for example, there is a concern that a beneficiary may end up with a taxable estate, any assets transferred to them in trust will not be includable in the beneficiary’s estate.

This could help reduce, if not eliminate, a large estate tax on the beneficiary’s death. Another benefit is the ability for the creator to maintain control of the distribution of trust assets should the beneficiary die before the complete distribution of their trust. 

If the beneficiary is unable to manage their personal finances for any reason, the document can name someone other than the beneficiary to be the Trustee of the trust. The document can include specific instructions on how to administer the trust, thus ensuring that the beneficiary is properly cared for and that assets of the trust will last for an extended period of time.

Beneficiary trusts can exist both within a last will and testament, also known as a testamentary trust, as well as a free-standing living trust. Either document can take advantage of this powerful tool.

Because it is not always immediately clear whether a beneficiary trust or outright inheritance is the right distribution method, it is important to meet with your estate planning attorney and provide them with as much information as possible in order for them to properly advise on the creation of your documents.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

Not all estates require a probate or full administration proceeding. A small estate proceeding,  also known as a Voluntary Administration, is a simplified Surrogate’s Court procedure. 

What estates qualify?

The  Voluntary Administration is available if the decedent passed away with $50,000 or less in  personal property. Personal property includes cars, cash, stocks — anything but real estate. The Voluntary Administration proceeding is not an option when the decedent owned real  property solely in their own name. It is available if the decedent died with or without a Will.  

Voluntary Administration is not only for decedents who had minimal assets. Sometimes  only certain assets were owned by the decedent in their sole name. This happens often with  married couples with joint bank accounts or who own real estate with rights of survivorship. A decedent may have named beneficiaries on most of their accounts. In such cases only some  property needs to pass through Surrogate’s Court. Other times a decedent conveyed most, but not all, of their property to a trust. If the assets left outside the trust are less than  $50,000, a Voluntary Administration is available.  

How to file

The small estate proceeding is initiated by filing of an “Affidavit of Voluntary  Administration.” The Petitioner is either the nominated Executor in the decedent’s Will or  the closest living relative when there is no Will. The Petitioner is asking the Court for the  authority to collect the decedent’s assets, pay off any debts, and distribute the property to  those with a legal right to inherit. If there was a Will, the beneficiaries named in the Will  inherit. If there was no Will, then the estate passes under the laws of intestacy. 

The Voluntary Administration Proceeding is less complex than a probate or full  administration proceeding. Consent and Waiver is not required from the decedent’s  distributees (heirs who will inherit under the estate). The Court only provides the  distributees with notice that the proceeding was filed. This avoids the expense of costly  litigation over the appointment of a fiduciary.  

Drawbacks

The Voluntary Administration Proceeding has some drawbacks. The appointed  Administrator only has the authority to collect the specific assets listed on the Affidavit of  Voluntary Administration. Such broad authority is only available in a full probate or  administration proceeding. The Administrator does not have the broad authority to collect  and distribute any additional assets. If the Administrator finds assets not listed on the initial Affidavit, they have to go back to the court. 

Further, if the assets exceed $50,000, the Administrator must convert the proceeding to a full probate or Administration. For this reason, when there is uncertainty about the assets, it may be wise to proceed with a full  probate or administration proceeding.  

A small estate proceeding costs only $1 to file. While the Voluntary Administration  Proceeding is simple and inexpensive, mistakes can be costly. It is always a good idea to  consult with an experienced Estate attorney to ensure that a small estate proceeding is the  best way to proceed. 

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

Living Trust. METRO photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

A key tool in the estate planner’s toolbox is a living trust. The term “living trust” refers to a document created during life that establishes a legal entity which can own certain assets.  The term differentiates a living trust from a “testamentary trust,” which is created after death. A further distinction to be made is whether the trust is Revocable or Irrevocable. Regardless of the title of the trust, the terms of the document will dictate the rules of how the assets in trust are managed and what control is retained by the trust creator.

A revocable trust leaves the creator with complete control over trust assets. The creator can be named as trustee with the power to revoke, amend, and restate the trust. Further, the creator’s Social Security number is used for the trust’s estate and income tax reporting. The main purpose of creating a revocable trust is to avoid court involvement after death. 

Assets that are not in a trust, do not have a joint owner, and do not name a beneficiary, require a court process after death. For those assets, the New York State Surrogate’s Court process is called probate, if the deceased person had a will, and administration, if they died without a will. There are several reasons to avoid the court after death, varying from disinheriting family members or not knowing your family, to owning property in multiple states or having disabled beneficiaries. For these and other purposes, the creation of a trust is often recommended.  

Beyond revocable trusts, circumstances may dictate the creation of an irrevocable trust. Irrevocable trusts are those that are written in a way to limit the creator of the trust in some fashion. The exact limitations will depend on the goals of the trust.  Common reasons to create an irrevocable trust are for Medicaid planning purposes or estate tax planning.  

For estate tax planning, two such trusts are an Intentionally Defective Grantor Trust (“IDGT”) and a Spousal Limited Access Trust (“SLAT”). Assets owned by an IDGT are removed from the creator’s estate, placing the growth outside of their taxable estate while taxing the income to the creator.  A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The SLAT can provide income and principal distributions to the spouse and other beneficiaries. While the contributing spouse makes an irrevocable gift to the trust and gives up any right to the funds, the beneficiary spouse and other beneficiaries are provided immediate access to the gifted funds. Both the IDGT and SLAT are tools for claiming the benefit of the current Federal estate tax exemption ($12.06 million in 2022) before it expires.

Most people do not realize that the death benefit of life insurance is taxable in your estate. Creating an Irrevocable Life Insurance Trust (“ILIT”) and transferring policy ownership to the trust removes the death benefit from the taxable estate. This also provides liquidity to pay any taxes imposed on the balance of the estate.

If the goal is to protect assets while obtaining eligibility for Medicaid benefits, it may be prudent to create a Medicaid Asset Protection Trust (“MAPT”).  Under this type of trust, the creator should not be the trustee.  While the creator can receive income distributions, they are restricted from accessing principal of the trust.  

All trusts, whether revocable or irrevocable, can avoid court process after death so long as the document is drafted and funded properly. The type of trust and exact terms can be determined by an estate planning attorney to ensure the client’s specific circumstances and goals are considered. 

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

The legalities surrounding a Last Will and Testament stem from Roman times, when six witnesses affixed their personal seals to a will. The will was later validated by examining these seals to make sure they remained intact. 

Today we use staples instead of seals, but, because the probate process remains so formal, many misconceptions exist. Let’s discuss some of the more prevalent myths surrounding probate that we encounter.

Myth: If I have a will, my estate doesn’t have to go through Probate.

While a will documents where your assets go at death, a will does not avoid probate. Probate is a Surrogate’s Court proceeding whereby a decedent’s Last Will and Testament is validated and given effect. 

In New York, a will is admitted to probate after the Executor files a petition. The probate petition includes the original will, as well as a death certificate and funeral bill. Proper notice must be given to the individuals who would have inherited had the decedent died without a will. 

The court issues “letters testamentary” which give the executor the authority to act. The executor opens an estate bank account, pays the debts of the estate and then makes distributions to the beneficiaries.

The only way to avoid probate is to place all assets into a trust or die owning only “non probate assets.” Non-probate assets are those held jointly or that list beneficiaries. Common non-probate assets with beneficiary designations are retirement accounts and life insurance policies. Not all types of accounts allow designated beneficiaries or transfers on death. Naming others as joint owners can have catastrophic drawbacks, such as capital gains tax and creditor issues. A revocable trust is the gold standard in avoiding probate.

Myth: I don’t need a will because my spouse will inherit everything.

The only way your spouse inherits everything is if you do not have children or grandchildren. People are often surprised to learn that if they have children, their spouse does not inherit all their assets. 

In New York State, if someone is married with children and dies without a will, their spouse gets the first $50,000 and half of the remaining assets. The children split the other half amongst themselves. This means that without a will, minor children or children from a previous marriage inherit almost half of your assets. 

This is not what most people expect or want. The only way to make sure your spouse inherits 100% of your assets is to draft a will or trust. 

The probate process can be avoided if the couple owns all assets jointly. Joint ownership has its own problems — especially considering estate taxes or if there are children from a previous marriage. 

The probate process may sound confusing, but the procedure is easy and orderly with the help of an estate attorney. One of the kindest things you can do for your family is to draft a well-thought-out estate plan so that your assets pass in an orderly manner. At Burner Law Group, we charge flat fees so that clients fully understand their options and receive an estate plan custom tailored to them.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

Spring is here and so is tax season. The income tax filing deadline this year is April 18, 2022. You have likely been gathering your documents or filing an extension. Since you are already working on putting your affairs in order, this is the perfect time to finally check estate planning off your to-do list. Why is now the best time to do estate planning when you are already stressed out about your tax documents?

You are already organized

You are already organizing your financials — expenses, bank accounts, 1099s. This is the same information you need to disclose to an estate planning attorney. Your estate just means “everything you own.” Your estate includes real property, bank accounts, retirement accounts, stocks and bonds, life insurance, business interests and any other valuables assets such as jewelry and art.

Maximize gifting next year 

If your income taxes are high or you regularly give money to family members, there may be a better way to maximize gift tax benefits. In 2022, individuals can gift up to $16,000 per year to as many people as they wish without incurring estate or gift tax. The recipient isn’t taxed on the amount received either. Individuals can also pay for other’s education and medical expenses estate and gift tax free. Although the federal exemption is very high right now at $12.06 million, it is set to sunset to $5.9 million in 2026. Estate planning attorneys can help you leverage this historically high exemption before it goes down.

Business succession planning 

If you own a business, you have likely already completed your returns. But have you thought about what would happen to your business if you became ill or passed away? Business succession planning is an integral part of estate planning — especially for small businesses. If you have any questions about your business structure, key person insurance or tax efficiency, now is the time to set up a meeting.

Save on income taxes

If your income taxes are too high, there are efficient ways to lower them. You can make donations to charity or transfer certain income generating assets to family members.

Changes in the law

Now is also a good time to review existing wills and trusts in light of upcoming changes in estate law. Do your beneficiary designations on your retirement accounts still make sense after the passing of the SECURE Act? If it has been more than a few years, you will want to make an appointment to review your documents with your attorney.

Protect your family 

Doing estate planning is one of the kindest things you can do for those you leave behind. Taking the time now to protect your family eases their burden later. If you have minor children or beneficiaries with special needs, estate planning is crucial.

An estate planner can draft an estate plan tailored to your situation — from simple wills and revocable trusts to asset protection planning — and organize your estate planning documents so everything can be kept safely in one place. We cannot know the future, but we do know that there is no way to avoid death or taxes.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

Pixabay photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

Although cryptocurrencies like bitcoin have gone mainstream, non-fungible tokens (NFTs) were relatively unknown until 2021. You may have heard about “Bored Apes,” “Crypto Kitties” or that artist Beeple sold an NFT for $69 million. If you do not exactly understand what an NFT is, you are not alone.

Unlike cash, which is interchangeable, non-fungible items are one of a kind. An NFT is a unique digital asset built on a blockchain that comes with the right to use it. An NFT can be a photograph, animation, graphic image, video, meme, tweet, or anything digital. The value of the NFT lies in its uniqueness, which is attributable to its traceability on the blockchain.

The easiest to understand use of NFTs is when they represent real-world assets or serve as certificates of authenticity. For example, Nike distributing an NFT with every sneaker to protect against counterfeiting. Owning a multi-million dollar digitally generated avatar is a bit harder to grasp. But 1 out of 10 Americans invested in NFTs in 2021, so even if the appeal escapes you, the concept of scarcity should be familiar.

What to do if your grandson gifts you an NFT for Christmas or grandma sends an NFT as a birthday present? Keep the password safe! NFTs reside in “digital” wallets, which are stored on a computer, flash drive, or an app on your phone. You must have the private key or seed phrase (at least 12 unrelated words) to access the wallet. This private phrase is the only way to retrieve the NFT.

Whether you buy the NFT or it is gifted, the basis in the asset is the purchase price. Just like stock or real estate, the basis (purchase price) is used to calculate the capital gain or loss for tax purposes when the item is sold. Likewise, the NFT gets a step up in basis to fair market value at the owner’s death.

NFTs pass like any other asset at death — if you can find them. Unless the private key is known, there is no way of accessing and gaining ownership. We recommend redundancy. Write the phrase down and store it some place safe, keep it in a password protected file on a computer and flash drive. Since there is no central repository to verify ownership of an NFT, we advise clients to make specific bequests of an NFT in their wills. Calling attention to it ensures that the Executor at least knows of its existence. Do not include the password of course, since a will becomes public after probate!

You can also hold an NFT in a Trust or Limited Liability Company (LLC). An NFT cannot be retitled in the name of a Trust — but you can transfer the NFT on paper, much like we do with stocks and LLC interests. Some practitioners champion using an LLC because it is easier to transfer compared to transferring the NFT on the blockchain. However, avoiding recording the transfer on the public ledger defeats the purpose of transparency and authenticity. There are other advantages to an LLC to consider, such as transfer tax discounts and asset protection.

The future use, value, and regulation of NFTs is unknowable. Perhaps one day your Last Will & Testament will be stored in a digital wallet. For now, just make sure to disclose NFTs to your estate planning attorney, so she can incorporate them into your estate plan.

Nancy Burner, Esq. is the founder and managing partner of Burner Law Group, P.C. focusing her practice areas on Estate Planning, Elder Law and Trusts and Estates. Burner Law Group P.C. serves clients from Manhattan to the east end of Long Island with offices located in East Setauket, Westhampton Beach, NYC and East Hampton.Visit www.burnerlaw.com.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

On January 1, 2020, as we entered another year without any idea of what was on the horizon, a new federal law took effect regarding retirement accounts. 

The SECURE Act, “Setting Every Community Up for Retirement Enhancement,” affects millions of Americans who have been saving through tax-deferred retirement plans with the biggest impact falling those set to inherit these plans. Now, two years later, SECURE is still a new concept for many clients who are unaware of the law or how it applies to their own situation.

One change is that the age at which a plan holder must take required minimum distributions (“RMDs”) was increased from 70 1⁄2 to 72. RMDs are taken annually, based on the full value of the account on December 31 of the prior year and the life expectancy of the plan holder. The delay to age 72 will result in a year and a half more of tax-deferred growth on the funds.

SECURE also created a $10,000 penalty-free withdrawal for someone giving birth to or adopting a child. The Act also expanded the ability for small business owners to offer retirement plan funding. However, the most drastic item in SECURE takes aim at the beneficiary of the plan after the death of the original plan holder.

Prior to SECURE, a non-spouse designated beneficiary had the option of converting the plan to an inherited IRA and taking a RMD based upon their own life expectancy. The beneficiary could take more than the RMD if needed, realizing that each distribution is taxable income. 

Consider a 90-year-old with an IRS life expectancy of 12.2 years who names a 65-year-old child as designated beneficiary. A 65-year-old has an IRS life expectancy of 22.9 years. That beneficiary could previously “stretch” the distributions over their life expectancy and allow those funds to grow tax-deferred for many more years. With SECURE, this stretch is lost for the majority of beneficiaries. SECURE prescribes a mandatory 10-year payout for a designated beneficiary. Being forced to liquidate in the 10 years will result in the payment of more income taxes than if the beneficiary had the 22.9-year payout.

The SECURE Act carved out limited exceptions to this 10-year payout rule. These five categories of designated beneficiaries include a spouse, minor child of the plan holder, chronically ill person, disabled person, or a person not more than 10 years younger than the plan holder.

If you have retirement assets, this change serves as a trigger to have your plan reviewed by your estate planning attorney and financial advisor. This review is especially important where an estate plan includes a trust as the beneficiary of a retirement account. The terms of the trust may need to be adjusted from being a conduit trust to an accumulation trust. 

A conduit trust forces all distributions out to the beneficiary, whereas an accumulation trust allows the distributions to remain protected in the trust. Other clients may decide to leave tax-deferred retirement assets to charities rather than individuals. Still others may rearrange allocations to make IRAs payable to a person not less than 10 years younger than them, such as a sibling, thereby focusing on saving other types of assets for beneficiaries otherwise forced to take a 10-year taxable payout.

Many Americans have spent their working lives contributing to tax-deferred plans with the idea that it will give them a stream of income in retirement, and pass on to their beneficiaries as a stream of income. While SECURE may not alter the plan for some, the impact of SECURE should be considered by all. Stay tuned for future updates because there are already whisperings about SECURE 2.0 which, among other things, may raise the age at which RMDs are required.

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