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By Brit Burner, Esq.

Brit Burner, Esq.

Estate planning is often a family affair. While clients may come to us worried about their future, they are also worried about the future of those they will leave behind when they die. It may be a child, niece, or nephew who has had a run of bad luck, a string of bad relationships, or one that makes bad business decisions. 

Even clients who are leaving assets to children with good marriages and seemingly no debt have concerns that one of these negative situations may arise in the future for one of their beneficiaries, and then what? 

When concern about a beneficiary is top of mind, clients are often interested in hearing about the options available for leaving assets behind in a Trust for the benefit of one or multiple beneficiaries. These can be called by several names but we regularly use the term “descendants trust.” This type of trust gives creditor protection to beneficiaries, protecting their inheritance from dissipation in the event of a divorce, bad business decisions, general creditors, or any other creditors. A descendants trust can be drafted to avoid additional estate taxes at the beneficiary’s subsequent death, thereby preserving wealth for another generation. 

A descendants trust can be created for each beneficiary to protect their inheritance. These trusts are created by the client’s last will and testament or living trust, and the creating document lists the specific rules of each trust.

One of the first decisions to make is who should serve as trustee. The trustee is responsible for investing and reinvesting assets held by the trust. This can include assets invested in the market, cash, or real estate. To assist clients in making the decision of who should serve as trustee, we ask if we are trying to protect the beneficiary from themself or from others. If the beneficiary is the problem, we will recommend a family member, friend, or corporate entity serve as trustee. For concerns about creditors, divorcing spouses or other outside entities, we may recommend that the beneficiary can serve as their own trustee. 

The particular circumstances of the situation will help dictate this choice. If a close family member or the beneficiary serve as trustee, they are deemed to be “interested” rather than “independent. 

In determining allocations of principal from the trust, an interested trustee is restricted to distribution only for health, education, maintenance, and support. If there is an independent trustee, then assets can be paid for any reason at the discretion of the trustee. 

For distributions of income, a descendants trust can provide that any income generated from an asset in the trust shall be paid out to the beneficiary, although the income can also be directed to remain in the trust and distributions can be made upon the discretion of the trustee. However, the trustee must keep in mind that income that remains in the descendants trust will be taxed to the trust at its own tax rate, usually higher than that of the individual beneficiary. 

Beyond the known concerns for a beneficiary, there may be a concern for future need for Medicaid or other government benefits. The descendants trust is a good solution because it can have supplemental needs language that allows a beneficiary to maintain or apply for government benefits while maintaining trust assets to be preserved, should this become necessary. 

While some clients may feel that their assets are such that their children will not need government benefits, there are many wonderful programs for the disabled that can only be accessed by government benefit programs. This provision may or may not be applicable to future heirs and is prudent to include. The future is unknown and with the proper planning, you be sure your beneficiaries and the money you leave for them is well protected.

Britt Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Elder Law. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

While there are very good reasons for creating a trust, the TYPE of trust is of great consequence and depends upon many facts and circumstances. No one should create and fund a trust unless they understand the reason — the problem (or problems) they are trying to solve. This article is intended as a simplified “primer” on the most common trusts used in estate planning. It is not exhaustive by any means but certainly provides a framework for designing an estate plan.

First, what is a living trust? A living trust is a document executed by you as the grantor or creator during your lifetime, as opposed to a testamentary trust that is created at your death. It is a free-standing document that sets forth how your trust assets should be managed during your lifetime and distributed at your death. 

One of the most common living trusts is the Revocable Trust. This document is meant to obviate the need for probate by titling all assets in the name of the trust. If properly drafted and funded, this trust will alleviate delays, make the administration of your assets seamless and significantly reduce the legal fees costs incurred on the settling of  your estate after you die. 

Typically, you would be the Grantor and Trustee of your own revocable trust. In the trust document you would name successor Trustees to act in the event of your incapacity or death. The revocable trust uses your Social Security number and is not a separate taxable entity.  

Another common trust is the irrevocable Medicaid qualifying trust. This trust will also avoid probate and has the added benefit of protecting assets should you require long term care in a nursing home or care at home through the Medicaid program. This trust is often funded with your home, as well as other assets. You would not be the Trustee of this trust, but you would name one or more of your beneficiaries or any other trusted individual  to act on behalf of the trust. Even if your home is transferred to this trust, you will still pay all the expenses of maintaining the home and have exclusive use and occupancy. 

You would also enjoy all the tax benefits like star exemptions, capital gains exemption upon the sale of your primary residence and your heirs would still obtain a step up in basis at your death. All income earned by the trust can be paid to you or accumulated in the trust, but will still be taxable to you at your individual rate.  

Often clients do not realize that life insurance proceeds are taxable in their estates. With the federal exemption likely to be cut in half by January 1, 2026, keeping the value of life insurance proceeds out of your taxable estate is a number one priority for many. A well drafted irrevocable life insurance trust (ILIT) will avoid such taxation. If the life insurance trust purchases the policy, then the life insurance will be completely outside your taxable estate. If you already own the policy and then transfer it to your insurance trust, you must survive the transfer by three years. 

With the prospect of the federal estate tax exemption being drastically reduced, many clients are opting to create spousal limited access trusts (SLAT). The SLAT could be used to transfer a significant amount of wealth out of your estate while the exemption is high. A SLAT is an irrevocable trust created by one spouse for the benefit of the other during his or her lifetime. The SLAT can provide income and principal distributions for the benefit of the non-grantor spouse and descendants, with the spouse being primary. The spouse can serve as a Trustee. 

Furthermore, assets in the SLAT are protected from the spouse’s creditors and not included in the spouse’s taxable estate. 

When planning for your estate, consider your goals. Do you have  taxable estate or are you worried about the cost of nursing home care? The solution should address those issues.  

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Michael Christodoulou

Michael Christodoulou

If you own a business and you offer a 401(k) or similar retirement plan to your employees, you’ll want to stay current on the various changes affecting these types of accounts. And in 2024, you may find some interesting new developments to consider.

These changes are part of the SECURE 2.0 Act, enacted at the end of 2022. And while some parts of the law went into effect in 2023 — such as the new tax credit for employer contributions to start-up retirement plans with 100 or fewer employees — others were only enacted this year. 

Here are some of these changes that may interest you: 

New “starter” 401(k)/403(b): If you haven’t already established a retirement plan, you can now offer a “starter” 401(k) or “safe harbor” 403(b) plan to employees who meet age and service requirements. These plans have lower contribution limits ($6,000 per year, or $7,000 for those 50 or older) than a typical 401(k) or 403(b) and employers can’t make matching or nonelective contributions. These plans are low-cost and easy to administer but the credit for employer contributions doesn’t apply, as these contributions aren’t allowed, and since start-up costs are low, the tax credit for these costs will be correspondingly lower than they’d be for a full-scale 401(k) plan. 

Matches for student loan payments: It’s not easy for young employees to save for retirement and pay back student loans. To help address this problem, Congress included a provision in Secure 2.0 that allows employers the option to provide matching contributions to employees’ retirement plans (401(k), 403(b), 457(b) and SIMPLE IRAs) when these employees make qualified student loan payments. Of course, if you offer this match for student loan payments, your costs will likely increase, although these matching contributions are tax deductible. In any case, you may want to balance any additional expense with the potential benefit of attracting and retaining employees, particularly those who have recently graduated from college. 

401(k) eligibility for part-time employees: Part-time employees who are at least 21 years old and have at least 500 hours of service in three consecutive years must now be eligible to contribute to an existing 401(k) plan. The inclusion of part-time employees could lead to higher business expenses for you, depending on the amount of contributions you may make to employees’ plans. Again, though, you’d be offering a benefit that could be attractive to quality part-time employees. 

Emergency savings account: Many people, especially those who don’t earn high incomes, have trouble building up emergency funds they can tap for unexpected costs, such as a major home or car repair or large medical expenses. Now, if you offer a 401(k), 403(b) or 457(b) plan, you can include a pension-linked emergency savings account (PLESA) that allows non-highly compensated employees to save up to $2,500, a figure that will be indexed for inflation in the future. PLESA allows for tax-free monthly withdrawals without incurring a 10% tax penalty. PLESA contributions are made on an after-tax (Roth) basis and must be matched at the same rate as other employee contributions.  

You may want to consult with your tax and financial professionals to determine how these changes may affect what you want to do with your retirement plan. The more you know, the better your decisions likely will be. 

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

 

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By Hon. A. Gail Prudenti, Esq.

Hon. A. Gail Prudenti, Esq.

After working most of your life and finally paying off your mortgage, the last thing you want is to see the assets you’ve accumulated through years of diligence fall into the government’s hands because you required long-term care either at home or in a nursing home. There is a way — a perfectly legal and legitimate way — to shield those assets and protect your children’s inheritance. But there’s really no time to lose. One of the ways in which we protect assets is by creating a Medicaid Asset Protection Trust (MAPT).

With a MAPT, you can protect your assets from the cost of long-term care. But there is a hitch: The trust must be created sixty (60) months before nursing home care is necessary. Currently, in New York, there is no lookback for transfers made before you apply for home care or Community Medicaid. At the writing of this article, we are unsure if a lookback will ever be implemented in the homecare setting. To be safe, planning early is imperative and the key to asset protection and preservation.

Let’s back up a second. Nursing home care is extremely expensive (very roughly $15,000 a month) and few people can afford to pay this amount over the long haul. Ultimately, they will rely on the Medicaid benefits to which they are entitled. In fact, approximately 72% of all nursing home costs in New York are covered by Medicaid. That means if you are in a nursing home paying privately, you are in the minority.

Under the 2024 Medicaid resource allowance, the application can have $30,182.00. If you have assets that exceed that amount, there could be a spenddown. If you do nothing, you could lose your home and investment assets. If you establish a MAPT — and stay out of a nursing home for sixty (60) months — those assets are out of the government’s reach and will be there for your benefit and ultimately, your beneficiaries.

In addition to the resource allowance, a Medicaid recipient can have retirements accounts in an unlimited amount (provided those accounts are set up for a specific monthly distribution), an irrevocable pre-paid burial, and a car. At death, there will be recovery for the benefits paid by Medicaid during the recipient’s life. This recovery can be avoided if assets avoid probate by having a joint owner, beneficiary, or are held in a MAPT when the recipient passes.

Although situations differ, what happens most often is an aging person or couple, as part of sound estate planning, will consult with an elder law or trust/ estate lawyer to weigh the benefits and drawbacks and determine if a MAPT makes sense and which assets should go into the trust. The trust funding is a crucial part of this process as is choosing a trustee. Often, the trustee is an adult child or other relative or friend who you can trust to follow your wishes.

What happens if your house is in a trust, and you decide to move? No problem. The trustee can sell the house and then the proceeds can be used to buy another home or simply invested to pay you income from the trust. 

Similarly, if you put your stock investments in the trust, the trustee can buy and sell securities in the trust. The new home and the new stock stays in the trust. The grantor of the trust keeps all the income, and the principal is protected.

Trusts can be legally complicated, and if you do decide to investigate a MAPT, it’d be wise to consult with an attorney who specializes in that area of law and keeps a close watch on statutory changes that may affect the operation of the trust. Mistakes and oversights can have devastating unintended consequences. It may be difficult or impossible — and it will certainly be expensive — to revise a trust. Better to get it nailed down just right from the start.

Hon. Gail Prudenti, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice on Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

Establishing a clear and thorough estate plan is essential for artists to maintain control over their artwork and preserve their legacy. An artist’s estate not only includes physical art, but a bundle of intellectual property rights, including copyrights. Additionally many artists have art collections that include others artists’ works as well as their own. The artist’s own art work is generally treated differently than their art collection, but both can be hard to value at death.

Generally speaking, at death one can dispose of these assets either through a Last Will and Testament or a Living Trust. With either document, an artist can specify not only who is to inherit a particular work of art, such as a family member or art gallery, but how the artwork is to be managed. For example, the artist can specify the proper storage and handling, appraisal, and insurance for the art work. Professional art appraisers and dealers can be hired to find buyers or exhibit the art to a wider audience. If doing so, it is important to set aside some estate assets to pay for the upkeep and handling of the art. If the Executor or Trustee is left to handle the art without any monetary resources, the plan will not work.

The main difference between a Will and a Trust is that a Will must be validated through Surrogates Court in a probate proceeding. Probate takes several months, sometimes years, for the nominated Executor to be officially appointed and imbued with the authority to collect the decedent’s assets, pay off any debts, and distribute the property to the beneficiaries according to the terms of the Will. 

A Living Trust, in contrast, is a separate legal entity created during one’s life to avoid the probate process. Provided the art work and intellectual property are transferred into the trust during life, the trust assets will pass free from court interference at death, avoiding the costs and delay of probate.

Avoiding probate is often appealing for artists because artwork and copyrights are particularly difficult to categorize and value in a probate petition. In addition, using a trust ensures privacy whereas a Will becomes public information when it goes through the courts. 

Further, a trust created during life can have provisions regarding incapacity, ensuring that precious pieces of art are properly cared for by the successor trustee in the event the artist can no longer maintain the works. Finally, some pieces of art cannot sit for the years it may take to go through the probate process.

The main advantage of a Living Trust is that it is not subject to continuing court oversight. If someone creates a trust for their art in their Will, any changes must go through the courts. For example, any change to the trustee would require court approval. Not so if the art trust was created in a Living Trust. A Living Trust can allow the beneficiaries to remove and replace a trustee without court interference. This is particularly important in artist estates where the Trustee is a professional instead of a family member. Many famous artist’s estate were mishandled by so-called trusted advisors. Avoiding the costs of litigation is reason enough to create a trust for artwork – especially if the artist is well- known.

An experienced estate planning attorney can help create an effective strategy for the artwork in your estate, ensuring your collection ends up in the right hands after death. Artwork can simply pass outright to beneficiaries if there is no substantial resale market. But, if the artist had established sales throughout their life, creating a trust or foundation at death to hold the art is the better route. As with any estate, the goal is to minimize in- fighting. Since art is so personal and cannot be easily divided, it is even more important to bequeath your works of art in a way that does not cause conflict.

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Michael Christodoulou

Michael Christodoulou

As we begin the new year, you may be receiving various tax statements from your financial services provider — so it’s a good time to consider how your investments are taxed. This type of knowledge is useful when you’re doing your taxes, and, perhaps just as important, knowing the type of taxes you generate can help you evaluate your overall investment strategy. 

To understand the tax issues associated with investing, it’s important to understand that investments typically generate either capital gains or ordinary income. This distinction is meaningful because different tax rates may apply, and taxes may be due at different times. 

So, when do you pay either capital gains taxes or ordinary income taxes on your investments? You receive capital gains, and pay taxes on these gains, when you sell an investment that’s increased in value since you purchased it. Long-term capital gains (on investments held more than a year) are taxed at 0%, 15% and 20%, depending on your income. 

Also, qualified dividends — which represent most of the dividends paid by American companies to investors — are taxed at the same rates as long-term capital gains. (Keep in mind that you’ll be taxed on dividends even if you automatically reinvest them.)

On the other hand, you pay ordinary income taxes on capital gains resulting from sales of appreciated assets you’ve held for one year or less. You also pay ordinary income taxes when you receive “ordinary” dividends, which are paid if you purchase shares of a company after the cutoff point for shareholders to be credited with a stock dividend (the ex-dividend date). 

Because your ordinary income tax rate may be much higher than even the top long-term capital gains rate, you may be better off, from a tax standpoint, by focusing on investments that generate long-term capital gains. And the best strategy for doing just that is to buy quality investments and hold them for the long term. By doing so, you could also reduce the costs and fees associated with frequent buying and selling.

The investment tax situation has another twist, though, because not all ordinary income is taxable — and if it is, it may not be taxable immediately. The most common example of this is tax-deferred accounts, such as a traditional IRA and 401(k). When you take money from these accounts, typically at retirement, you’ll pay taxes at your personal tax rate, but for the years and decades before then, your taxes were deferred, which meant these accounts could grow faster than ones on which you paid taxes every year. Consequently, it’s generally a good idea to regularly contribute to your tax-advantaged retirement accounts. 

Finally, some investments and investment accounts are tax free. Municipal bonds are free from federal income taxes, and often state income taxes, too. And when you invest in a Roth IRA, your earnings can grow tax free if you don’t start taking withdrawals until you’re at least 59½ and you’ve had your account at least five years. 

Ultimately, tax considerations probably shouldn’t be the key driver of your investment choices. Nonetheless, knowing the tax implications of your investments — specifically, what type of taxes they may generate and when these taxes will be due — can help you evaluate which investment choices are appropriate for your needs.  

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Edward Jones, Member SIPC

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By Nancy Burner Esq.

Nancy Burner, Esq.

A Durable Power of Attorney is a statutory form that enables the principal (the creator of the power of attorney) to empower a trusted individual, as acting agent, to manage the finances and property during the principal’s lifetime. Having a Durable Power of Attorney in place is incredibly important, especially later in life if the principal lacks legal capacity. Even if incapacitated, the appointed agent will still be able to use the document to access bank accounts, sign checks, pay bills, and carry out any essential estate planning.

Durable Powers of Attorney in New York are governed by Title 15 of New York General Obligations Law. The statute enumerates several categories of powers that may be granted to an agent: (A) real estate transactions, (B) chattel and goods transactions, (C) bond, share, and commodity transactions, (D) banking transactions, (E) business operating transactions, (F) insurance transactions, (G) estate transactions, (H) claims and litigation, (I) personal and family maintenance, (J) government benefits, (K) financial matters related to health care, (L) retirement benefits, (M) tax matters, and (N) all other matters.

These transactions are further defined in GOL Sections 5-1502A through 5-1502N (and thus aren’t spelled out in the Power of Attorney form itself), but certain powers relating to these various transactions are limited unless expressly stated otherwise in the “Modifications” section of the form. For example, Section 5-1502D provides that the authority over “banking transactions” allows the agent to modify, terminate and make deposits to and withdrawals from any deposit account, but with respect to joint accounts, the agent cannot add a new joint owner or delete a joint owner unless such authority is expressly granted. 

In addition, as to insurance transactions, Section 5-1502F provides that the agent may not change the beneficiary designations unless the Durable Power of Attorney specifically states otherwise, and under Section 5-1502L an agent similarly cannot change the designation of beneficiaries of any retirement accounts unless this authority is expressly granted. Further, Section 5-1502K gives the agent authority over health care financial matters, benefit entitlements, and payment obligations, but this authority does not include the authority to make health care decisions for the principal — this authority can only be granted by a valid Health Care Proxy.

GOL Section 5-1513 sets forth particular requirements regarding the authority of an agent over gifting transactions. If the principal grants the agent authority relating to personal and family maintenance (Section (I) of the form mentioned above), the agent may make gifts that the principal customarily made to individuals, including the agent, and charitable organizations, not exceeding $5,000 in any one calendar year. In order to authorize the agent to make gifts in excess of the $5,000 annual limit, the principal must expressly grant that authorization in a separate Modifications section, including whether the agent has the authority to make gifts to himself or herself. 

While gifting is a significant power that should not be given lightly, it can be critically important in certain situations, such as Medicaid planning, where assets need to be transferred out of the principal’s name in order to meet the eligibility requirements. In order to qualify for Medicaid coverage for homecare or nursing home care in New York in 2024, an individual applicant cannot have more than $30,182 in assets. And if the applicant lacks the capacity to make the necessary asset transfers, without a Durable Power of Attorney with gifting authority, the only alternative would be for a legal guardian to be appointed by the court which is costly and time- consuming.

An experienced estate planning attorney can help explain the advantages of having a Durable Power of Attorney and prepare certain important modifications to the statutory form to better accomplish your estate planning objectives.

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

For the charitably inclined, there is always a question of how to be most efficiently leave money to charities in your estate plan. Charitable giving ranges from simple small monetary amounts to more complicated charitable trusts. No matter the option, there are potential income tax and estate tax implications to consider.

Leaving a specific bequest in your ill or Trust is one common type of charitable gift. You leave a set amount to a charity of your choosing at the time of your death. For those that want to cap the amount that given to charity, this is a good option. These specific bequests are paid out first, off the top of the estate. Thus, if you only have $100,000 in your estate and leave specific bequests totaling $100,000, there will not be any assets left to the residuary beneficiaries. Usually, the residuary portion of an estate is the largest. But not always and especially not if you do not correctly allocate your assets.

Residuary beneficiaries are those that receive a percentage or fractional distribution of the “rest, residue, and remainder” of your estate. Take the example above, if your total estate assets equal $300,000, then after the $100,000 charitable bequests, your residuary beneficiaries receive the remaining $200,000. A charity can also be one of your residuary beneficiaries, in which case the charity would receive a fractional share of your choosing. 

In certain circumstances, it is beneficial to include a “disclaimer to charity.” You would add a provision in your Will or Trust directing that any “disclaimed” amount of your estate goes to charity. This is done for estate tax planning purposes. If your estate is more than 105% over the New York State estate tax exemption amount ($6.11 million in 2022), you then “fall off the cliff.” This means that your estate will receive no exemption and the entire estate taxed from dollar one. However, if your Will or Trust has a disclaimer provision, any amount that a beneficiary rejects goes to the charities that you listed.  That gift to charity serves to reduce your taxable estate, moving it back under “the cliff” and saving a great deal in taxes. This is an especially useful tactic for those with estates that are on the cusp of the exemption amount.

Another method of charitable giving is gifting tax-deferred retirement assets. While you are still living, you can gift from your retirement account up to $100,000 per year as a qualified charitable distribution. Making the gift directly to the charity removes the required minimum distribution from your taxable income. There are some pitfalls to avoid.  Not all plans qualify for this type of distribution, not all charities are considered “qualified,” you cannot receive a benefit in exchange for the distribution (ex. a ticket to a charity concert), and you must gift the funds directly from the retirement account to the charity.

In addition to charitable gifting from a retirement account during your lifetime, you can list charities as  after-death beneficiaries of your accounts. If you have a mixture of individuals and charities as beneficiaries, you may want to leave the retirement assets to the charities. This saves your individual beneficiaries from paying income tax on distributions. Especially in light of the SECURE Act, which requires that most beneficiaries of retirement account withdraw all the funds within ten years. The income tax consequences for such beneficiaries may be steep if there is a large retirement account. 

While there are several charitable giving options, each person will need to navigate a solution that suits them best. An experienced estate planning attorney will take into account the size of the estate, potential tax liabilities, how much you want to leave to charity, and your other beneficiaries. With proper planning, you can ensure your gifts go as far as possible to benefit the charities that you hold dear.

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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Matthew Kiernan, Esq.

Burner Prudenti Law, P.C. has announced that Matthew Kiernan, Esq., former Public Administrator of Suffolk County as appointed by the Surrogates Court, has joined the firm as Counsel. Kiernan brings decades of legal experience that includes time in private practice, public service, the court system, and academia. The hiring adds to the firm’s recent expansion of its Trust & Estates and Elder Law practices.

“We are very excited to welcome Matthew Kiernan to the firm,” said Nancy Burner, Founding Partner. “His distinguished and longstanding commitment to serving Suffolk County and New York state along with his exceptional trust & estate and guardianship work is a significant boon for the firm and for our clients.”

“I’m so pleased to be working with Matthew again. He is an outstanding lawyer and problem solver who will work tirelessly for our clients,” said Judge Gail Prudenti, Partner. For more information, visit www.burnerlaw.com.

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By Nancy Burner, Esq.

Nancy Burner, Esq.

A Descendants Trust (commonly referred to as an Inheritor’s Trust) is a trust that is created under a person’s living trust or last will and testament that only comes into effect upon the death of the creator (“Grantor” in the case of a trust or “Testator” if a will). When a person leaves an inheritance for a beneficiary, he/she can choose to leave the share to the beneficiary outright or in a further Descendants Trust. 

If left in a Descendants Trust, the inheritance: (1) can be protected from the beneficiary’s creditors, (2) will avoid becoming marital property subject to equitable distribution upon the beneficiary’s divorce, and (3) will be better preserved for future generations.

One advantage of a Descendants Trust is that if it is drafted correctly it can offer creditor protection for the beneficiary. Typically, the terms of the Descendants Trust will provide that income generated by the trust (e.g. interest, dividends) is distributed to the beneficiary annually/quarter-annually and trust principal can be distributed for the beneficiary’s health, education, maintenance, or support (“HEMS”) if the beneficiary is acting as his/her own trustee. 

Otherwise, an independent trustee (a person not related by blood or marriage to the beneficiary and is not subordinate to the beneficiary i.e. does not work for the beneficiary) can distribute trust principal for any purpose. By limiting distributions in this way, the trust property will be beyond the reach of the beneficiary’s creditors and protected from any potential judgments.

A second advantage of Descendants Trusts is that they are an effective tool of protecting the beneficiary’s inheritance in the event of divorce. Generally speaking, when people get divorced they each retain their “separate property” while “marital property” is equitably divided by the court. Separate property includes property received as an inheritance, but if that inherited property is comingled with other marital property during the marriage, it can be subject to equitable distribution upon divorce. 

However, if the inheritance is left in a Descendants Trust and the beneficiary keeps the inheritance in the trust and avoids comingling it, the property will be protected from the beneficiary’s spouse should they get divorced.

Another benefit of a Descendants Trust is that it is a good vehicle for preserving wealth for future generations. When property is left to a beneficiary outright, it simply becomes a part of the beneficiary’s own estate, and thus will pass according to his/her own estate planning documents upon his/her death. However, the terms of a Descendants Trust can stipulate the contingent/remainder beneficiaries so, for example, one can provide that upon a child’s death their share is to pass to his/her children in further trust. 

Additionally, for high net-worth individuals with taxable estates, by limiting distributions of trust principal for HEMS, as discussed above, property passing into the Descendants Trust will remain outside of the beneficiary’s taxable estate, saving the beneficiary potential estate taxes upon his/her own death.

A Descendants Trust can be a great option for those who want to leave property to beneficiaries with creditor issues, beneficiaries going through a divorce, high net-worth individuals, or simply for beneficiaries lacking fiscal responsibility where it would be best for their inheritance to be managed by another person as trustee. An experienced elder law attorney can advise you as to whether a Descendants Trust makes sense for your particular situation and estate planning goals.

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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