WILLS, “Living documents” and trusts Protecting Your Self and your wealth 12th Annual Financial Fitness Workshop September 27, 2014 FPANY’s Public Awareness Committee in Partnership with NYU School of Professional Studies

Disclaimer All information contained in these pages is for informational purposes only. It should not be considered legal advise. Please consult an attorney before taking any steps based on this information. All information contained in this presentation is for informational purposes. All financial advisors are committed to fiduciary standard. Professionals are bound to adhere to the Certified Financial Planner Board of Standards and Ethics and/or the Financial Planning Association Standards depending upon their designation. The information contained in this document was provided on a pro bono basis. No compensation was obtained in exchange for services provided either directly or via a third party. Financial Planning Association

What is an “Estate Plan”? LEGAL DOCUMENTS “Living Documents” Wills & Trusts Deeds to Real Estate GIFTING DURING LIFE Giving Outright or in Trust 529 Plans & UTMAs Health & Education Expenses ACCOUNTS & BENEFICIARY DESIGNATION FORMS Joint & Individual Accounts Life Insurance Policies Retirement Plans

What are “Living Documents”?

Health Care Proxy A document regarding health care decisions Names an “Agent” Authority to make health decisions Access to medical records Organ Donation desires Places limitations on treatment

Living Will States your desires when: 1. You are in a terminal condition; or 2. You are permanently unconscious; or 3. You are conscious but have irreversible brain damage and will never regain the ability to make decisions and express your wishes. These conditions are sometimes referred to as "a vegetative state."

Power of Attorney Designate a person(s) to manage your financial affairs. States specific areas of your finances you are giving control over (can be all areas). Can allow “Gifting” to others Beware. This is a blank check. The person you designate could take all your money. They could go to jail for it, but the money may have disappeared before they are caught.

Post-Mortem Transfers “Operation of Law” Transfers Probate / Administration Jointly Owned Property Retirement Plans* Life Insurance* “Transfer on Death” [TOD] accounts* Trusts Anything with a “Beneficiary Designation” (Annuities, etc.) Because we know who it goes to at death * Do NOT name beneficiary as “”My Estate”: This makes it a Probatable asset Everything Else Because we don’t automatically know who it goes to 2 Legal Procedures: If Will = “Probate” If NO Will = “Administration”

Probate: When there is a valid Will A PUBLIC process to validate and administer a Will Executor brings Will to SURROGATE’S COURT Places relevant parties on legal notice  Court may appoint an attorney to represent minor children (a “Guardian Ad Litem”) Court appoints a Guardian (if minors exist) Executor delivers an “Inventory of Assets” with the court

Wills: What does a proper Will accomplish? States who receives what property and how / when Names an Executor: to administer Probate Estate Collects assets Pays creditors Can bring lawsuits Pays beneficiaries Names a preferred Guardian for Minor Children

Testamentary Trusts A Trust created in a Will Example: “My Trustee shall pay for my child’s health, education and support needs until he/she is 25, at which point the rest of the Trust shall be paid to him/her” A Trustee is named A different job than Executor (but can be the same person); only concerned with the money in Trust Choose a Trustee you trust; can have more than one person serve at the same time

YOU HAVE A WILL WHETHER YOU HAVE WRITTEN ONE OR NOT Guess What… YOU HAVE A WILL WHETHER YOU HAVE WRITTEN ONE OR NOT

Administration: When there is NO Will An Administrator is named and MUST deliver estate property as follows: Who Gets What? 1. Spouse only - 100%   2. Spouse & Children - $50,000 to spouse + 50%/50% split between spouse and children 3. Children only - 100% divided equally 4. Parents only - 100% divided equally 5. Siblings only - 100% (Nieces and Nephews) 6. Grandparents only - 100% divided equally 7. Aunts + Uncles only - 100% divided equally 8. Cousins only - 100% divided equally 9. The State of New York Who Gets Nothing? 1. Life Partners 2. Friends 3. Those relatives not “in line” (see left) 4. Pets 5. Organizations and Institutions 6. Business Partners 7. Specific Gifts to Specific People 8. Charities

Executor / Administrator Compensation (if not stated in Will) ONLY paid for money passing through Probate or Administration: 5% for the first $100,000 probated ($0 to $100,000) 4% for the next $200,000 probated ($100,001 to $300,000) 3% for the next $700,000 probated ($300,001 to $1,000,000) 2 ½% for the next $4,000,000 probated ($1,000,001 to $5,000,000) 2% for all additional assets probated ($5,000,001 and Above) Co-Executors may each be entitled to a full commission

Non-Testamentary Transfers Joint Property Life Insurance Retirement Plans Transfer on Death [“TOD”] accounts Trusts

Jointly Owned Property The Survivor needs the other owner’s Death Certificate (that is all) No Probate or Administration needed Positives Negatives Easy access to both owners Minimal transfer costs Non-trusted joint owner can empty the account May have gift tax costs and consequances

Life Insurance Beneficiary needs a Death Certificate and be on the “Beneficiary Designation Form”

Retirement Plans Includes: IRAs, 401(k)s, 403(b)s, certain pensions, etc. Beneficiary needs a Death Certificate and be on the “Beneficiary Designation Form” Owner must begin taking Required Minimum Distributions [“RMDs”] the year after he/she turns 70 ½ (most people do it at 70 ½)

Inherited IRAs Only a spouse can transfer one person’s IRA directly to his/ her own IRA Everyone else: “Inherited IRA” “The Nancy Smith Inherited IRA f/b/o Megan Smith- Jones” The beneficiary must take RMDs no later than the year after owner’s death, even if the beneficiary is under 70 ½

Transfer of Death [“TOD”] Also seen as “In Trust For” [“ITF”] or “Payable on Death [“POD”] Owner retains total control during life Can change beneficiary, take all funds out, etc. Future beneficiary has no control until owner passes After passing, beneficiary needs a Death Cert. Ex: “Mary Smith Savings Account TOD Patrice Lange”

Trusts: Who is Involved? Assets owned by Trust pass Outside of Probate Creator / Grantor / Settlor > Creates the Trust > Determines Terms of the Trust > Funds the Trust Beneficiaries > Entitled to the property under the terms of the Trust Trustee > Manages the trust property > Follows the Terms of the Trust > Entitled to a Commission

Trusts vs. Wills Wills Trusts Positives Typically cost less to draft You should have one anyway No Probate costs for assets transferred by Trust(s) Private document Fast distribution of funds / Continuity of control May provide tax savings / government program access Negatives Eventual Probate Costs All information is public Longer time to access and distribute funds You may need a “Testamentary Trust” anyway More legal fees up front Time / effort required to transfer assets into Trust

Revocable Trusts A person can serve as all three parties at the same time (1) amend or revoke the trust, (2) if the Creator becomes disabled a Successor Trustee can continue to use Trust funds for the Creator’s benefit without requiring court approval (3) upon the Creator’s death the Successor Beneficiaries can receive the remaining estate without the need of going through Probate

Revocable Trusts: + & - Benefits Detriments Can be altered, amended revoked Creator can transfer funds into and out of Trust whenever they want Detriments No savings on estate taxes ** Have to “Fund” the Trust: Account / Deed Name: “The John and Mary Smith Revocable Trust”

Four Types of Irrevocable Trusts Estate Tax Saving Trusts (Non-Marital) “ILITs” – Irrevocable Life Insurance Trusts “GRATs & GRUTS” – Grantor Retained Annuity/Uni-Trusts “QPRTs” – Qualified Personal Residence Trusts Estate Tax Marital Trusts “QTIPs” – Qualified Terminal Interest Property Trusts “CSTs” – Credit Shelter Trusts Medicaid / Disability Trusts “SNTs” – Supplemental Needs Trusts “IOCs” – Income Only Trusts (and “MAPTs” – Medicaid Asset Protection Trusts) Charitable Trusts CRATs & CRUTS” - Charitable Retained Annuity/Uni-Trusts “CLATs & CLUTs” - Charitable Lead Annuity/Uni-Trusts

What Transfers are NOT Taxable? Transfers Between Spouses Any US Person’s Health and Education Expenses The Annual Exclusion Gifts of $14,000 (in 2014)

Gift & Estate Tax Exemptions Fed v. NY Federal Government New York State Gift Tax Exemption $5,340,000 Unlimited Estate Tax Exemption Now: $2.062,500 2015: $3,125,000 2016: 4,187,500 2017: 5,250,000 2019: Fed Amount

“Credit Shelter Trust” A Credit Shelter Trust [“CST”] is a provision of a Will or Trust that holds up to the federal or state estate tax exemption. The surviving spouse can invade the CST if needed Funds in the CST grow. Upon the death of the surviving spouse all of the funds in the CST, including investment gains, pass to youngercontingent Beneficiaries

Irrevocable Life Insurance Trusts: “ILITs” If done correctly, the life insurance proceeds pass to beneficiaries without estate taxes Owner of Policy: The ILIT Beneficiary: The insured life Insured:

MEDICAID: Financial Eligibility Requirements ASSETS $14,450 in the recipient’s name EXCEPTIONS: “Burial Allowance” of $1,500 Life Insurance: $1,500 cash value Personal Property (unlimited) Your House (ONLY for Home & Community care) Supplemental Needs Trusts Income Only Trusts Retirement Plans (IRAs) are exempted from assets if they are in “payout status” MONTHLY INCOME HOME CARE: $809per month Any excess income must go to the recipient’s “SPEND DOWN” INSTITUTIONAL (at a Nursing Home): ALL of the recipient’s monthly income in excess fo $50 must be paid to the NH to offset Medicaid payments

Types of Supplemental Needs Trusts FIRST PARTY: The Beneficiary’s money is used to fund the Trust Upon death trust funds MUST be used to pay back Medicaid before remaining funds are transferred to desired contingent beneficiaries Individual Trusts: The individual’s excess assets and “spend down” income can go into this Trust: (1) the funding Beneficiary must be under 65 years old, (2) individual must be “Disabled” under Social Security Laws, (3) must be established by a parent, grandparent, legal guardian or court order (4) there MUST be a payback provision to Medicaid Pooled Trusts: Available to people who are over 65 and have no one to establish the Trust (#3 above) THIRD PARTY: An outside individual’s money funds the Trust Upon the Beneficiary’s death any remaining funds go to the contingent beneficiary NO Medicaid Payback is required (because the Trust was never the Beneficiary’s property)

Drafting Legal Documents See a lawyer who focuses on Estate Planning before drafting documents

Questions & Answers Daniel Timins, Esq. dan@timinslaw.com 477 Madison Avenue, Suite 240 New York, NY 10022 Slide show created by Daniel Timins, template created by Mark Salinger, CFP® For more information about the Financial Planning Association of New York visit www.fpany.org.