Articles | Oct 21, 2024

National Estate Planning Awareness Week – October 21-27, 2024

National Estate Planning Awareness Week October 21-27, 2024, piggy bank with a house on top of it and Phillips Lytle logo

Trusts and Estates FAQs

Question: Is there any way I can maintain control of my business while transferring some of the value of the business to my children now?

Answer: The short answer to this question is yes. Through a process called recapitalization, stock of a corporation or shares of an LLC can be split into voting shares and non-voting shares. The voting shares can be retained by the business owner to maintain all the control of the company while some of the non-voting shares could be transferred to the children. The transfer of the shares to children will utilize some of the business owner’s federal gift tax exemption. Maximum use of this exemption can be leveraged in the valuation of the non-voting shares by using discounts for lack of marketability and/or as minority interests. Business owners concerned about succession planning should consider gifting during life as part of their estate plan.

Question: Are there any tax benefits to leaving my assets to my grandchildren instead of my children?

Answer: If you leave your assets to grandchildren, the federal generation-skipping transfer (GST) tax applies, which is a flat 40% tax on the assets left to your grandchildren’s generation. This GST tax is in addition to the federal estate tax. However, like the federal estate tax exemption, there is currently a federal GST exemption. The GST exemption allows you to transfer assets to your grandchildren equal in value to the GST exemption without causing the GST tax. And you don’t need to “skip” your children. You can put the assets in a trust for the benefit of your children and, at your children’s deaths, the assets are passed on to the grandchildren free of GST tax. Estate planning that uses your GST exemption avoids those assets from being subject to estate tax in your children’s estates.

Question:  Are there different types of legal guardianships depending upon the situation my family may be facing?

Answer:  A guardian is a fiduciary appointed by a court and granted powers over the person and/or property of another. Guardianships are granted in either Surrogate’s Court or State Supreme Court.

In the Surrogate’s Court, the appointment of a guardian is limited to an infant (person under the age of 18), a person of any age having an intellectual disability such as Down’s syndrome or traumatic brain injury, or a person with a developmental disability such as cerebral palsy, autism or epilepsy that originated prior to the age of 22 years. A proceeding in the Surrogate’s Court for guardianship of a person other than an infant is highly dependent upon medical diagnoses. The powers granted to a guardian appointed through the Surrogate’s Court are generally set forth by New York State law with little deviation or tailoring to specific circumstances.

In the alternative, guardianship may also be sought from the Supreme Court over a person of any age, requiring only a showing of incapacity. A person who is likely to suffer harm due to an inability to provide for personal needs and/or property management, and who cannot adequately understand and appreciate the nature and consequences of such inability, may be deemed incapacitated. The focus of an incapacity determination is a person’s functional level and limitations, including an assessment of the person’s management of daily living, preferences and wishes and, while relevant, is not entirely dependent upon medical history. The powers granted to a guardian through the Supreme Court are required to be specifically tailored to provide the least restrictive form of intervention so the incapacitated person is afforded the greatest amount of independence and self-determination.

Every potential guardianship requires a careful approach and thoughtful decision making. With a proper approach, the needs of a vulnerable individual can be met with minimal interference to his or her independence and self-determination.

Question: Should I be directing the distribution of life insurance and my Individual Retirement Accounts (IRAs) under my Will?

Answer: An owner of a life insurance policy or retirement account (IRA, 401(k), 403(b), etc.) may name one or more beneficiaries to receive the death benefit proceeds from the policy or the retirement account balance upon the owner’s death. These directions for distribution are typically made under a beneficiary designation on file with the entity holding the policy or account rather than under the terms of your Will. In fact, having retirement accounts payable to your estate, with direction for your Executor to distribute to a beneficiary under your Will, may have negative income tax ramifications and diminish the beneficiary’s inheritance.

Our article, “Beneficiary Designations in Estate Plans: An Important (Often Overlooked) Step” previously published in the Rochester Business Journal, provides guidance on naming beneficiaries and will alert you to common beneficiary designation blunders to avoid.

Question:  I am ready to think seriously about my estate planning. Where do I start?

Answer:  We recommend that you start with a full review of your current financial and family situations, and consider your goals in estate planning. Let our Estate Planning Toolbox provide some guidance during this process.  After that, reach out to a member of our team to get started!

 

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