New York Estate Planning

by Jay J. Sangerman, PLLC © 2003

A. Management:

Who is going to take care of me? How am I going to maintain control over my life should I become incompetent? What are the tools I need?


1. Living Trust: a contract by which one can place assets in a trust, designating in the trust agreement how the assets are to be managed and utilized. Caution: check state law in which intend to reside for requirements pertaining to the execution of a Living Trust and Trustee requirements. (New law in Florida requires publication upon death of grantor of a Living Trust if no probate; execution requirements are different than in New York).

Most Living Trusts are revocable permitting changes so long as the creator of the Trust is alive and has capacity. Irrevocable trusts are used as tools for tax and/or Medicaid planning. Trustee can be an individual or corporate fiduciary.

Advantages of a Living Trust: control over one's own destiny; ease of asset management; possible avoidance of probate. Living Trusts are "tax neutral."

Disadvantages of a Living Trust: cost to create and maintain; complexity.

Remember: also check your last wills and testaments: are they properly executed? Do you live in a state other than the state in which the will was executed? Are the requirements different and will there be problems in probate?

2. Power of Attorney:

Advantage: gives agent the authority to control and manage assets.

Disadvantage: can be abused and does not specify how the funds are to be managed.

Caution: States have different rules pertaining to the requirements for a power of attorney, e.g., in Florida, unless a power of attorney recites real estate, it cannot be used for real estate transaction. In most states, a power of attorney cannot be used for gifting unless power is specifically authorized. New York power of attorney law last changed as of January 1, 1997. Will not receive $10,000 tax free gift exclusion when gift made with power of attorney unless power to gift is specified.

3. Health Care Decisionmaking

The New York State Health Care Proxy Law

In October, 1990, the United States Supreme Court in Cruzan v. Director of Missouri Department of Health held that each individual has the fundamental right to make health care decisions for oneself. However, each state can designate the procedure by which health care decisions are carried forth. Nancy Cruzan, a 25 year old Missouri woman, was rendered comatose in an automobile accident in 1983. A feeding and hydration tube was inserted shortly after the accident. Thereafter, Nancy was diagnosed as being PVS (in a persistent vegetative state). Her parents requested the Missouri hospital to withdraw the artificial nutrition and hydration provided by the feeding tube. The hospital refused. The Missouri Supreme Court upheld the hospital's decisions.

The case went to the United States Supreme Court, which rendered its decision in June, 1990. Chief Justice Rhenquist, who wrote the majority opinion, held that while a person has a constitutionally protected liberty interest in refusing life-sustaining nutrition and hydration, when it comes to someone else making that decision for an incompetent person (for instance, one in a coma), the State of Missouri could refuse to authorize removal of the nutrition and hydration tube in the absence of "clear and convincing evidence" as to the incompetent person's wishes. Therefore, because the Missouri court found that there was not "clear and convincing evidence," the tube was not removed from Nancy. Finally, the Missouri court heard new evidence in the case and found that there was "clear and convincing evidence" that Nancy Cruzan did not want to be maintained by life-sustaining treatment. Therefore, the nutrition and hydration tube which kept Nancy alive since 1983 was removed and she died shortly thereafter.

If Nancy Cruzan were to have been rendered PVS in New York today and if she had a Health Care Proxy or a Living Will, most likely her family would have been able to have life-sustaining treatment withdrawn.

In January, 1991, the New York State Health Care Proxy law became effective. Under this law, you may appoint one person to be your agent for making medical decisions, including decisions about life-sustaining treatment, in the event of your mental incompetency. If you do not have a Health Care Proxy, then life-sustaining treatment cannot be withdrawn in the absence of "clear and convincing evidence" that you wanted such treatment withdrawn. Furthermore, if you do not instruct your agent that you wish artificial nutrition and hydration withdrawn, then your agent will not be allowed to refuse those measures for you.

Living Will

A Living Will is a document by which you describe the life-sustaining treatment you wish or do not wish to be administered and the circumstances under which such treatment should or should not be administered. In New York, if you desire an advance health care directive, you can have either a Living Will or a Health Care Proxy, or both a Living Will and a Health Care Proxy. Some people want a Living Will in order not to give authority to an agent. Others prefer a Living Will in conjunction with a Health Care Proxy because it gives the comfort of knowing that they have set forth instructions in writing. A Living Will may relieve your agent's anxieties when having to make life or death decisions for you. Furthermore, should your agent or successor agent be unavailable, or should you be in a state which does not accept the New York Health Care Proxy, then your Living Will may serve as instruction to your health care provider. Use Caution: A Living Will should be carefully drafted so as not to impose unintended limitations upon your surrogate decisionmaker.

Issues to consider before signing a Health Care Proxy or Living Will

 Have you discussed the Health Care Proxy and/or Living Will with your family and your doctor? With your intended agent?

 What is your view of the sanctity of life, the dignity of life and the quality of life? How will your desires best be achieved?

 What does your religion have to say concerning the removal of life support systems? Do you wish to discuss these issues with your religious leader before signing a Health Care Proxy or Living Will?

 What is your view of artificial nutrition and hydration (feeding tubes)? Do you feel that food and water are such a natural part of life that you do not wish them removed?

 Do you wish to give someone unfettered authority to make health care decisions for you?

 What limitations, if any, do you wish to place on the authority of your agent?

B. Medicare and New York Medicaid Planning:

Do you know that under MEDICARE you can appeal the denial of Medicare payments. And, all you need to do is to write a simple letter to the regional Medicare carrier requesting a review, enclosing your EOMB (Explanation of Medicare Benefits) form with your letter. If you do not receive satisfaction, you can request a hearing before an Administrative Law Judge and possibly even in the United States District Court.

Do you know that neither MEDICARE, supplemental medigap nor most major medical insurance policies cover custodial nursing home care. Medicare covers only a maximum of 100 days of skilled nursing home care per spell of illness. Therefore, effective advance planning requires either the purchase of Long Term Care Insurance or Medicaid planning through a program of gifting assets.

Do you know that under MEDICAID you can transfer your assets to a third party and thereby become eligible for Medicaid. But this transfer may cause a penalty period of up to 36 months (or 60 months in the case of a trust) before you can receive benefits for nursing home payments. The penalty period can be shorter if the amount of the transfer does not exceed 36 times the Medicaid presumed average monthly cost of nursing home care in your county ($8,157 in the New York City area). If you transfer assets to a community spouse (the well spouse), there is an unlimited transfer permitted, but in 2003, the community spouse can retain a maximum of either $74,820 or $90,660, depending upon manner of calculation (with certain exceptions) plus an irrevocable prepaid funeral agreement and an income of $2,267. The spouse in the nursing home can retain $3,850 plus a prepaid "Pre-Needs Funeral Agreement" and, in some cases, a burial fund. There are different permissible levels of resources for the well spouse when the ill spouse is receiving homecare. The resource level is so low ($5,600.00 for the couple) that generally the well spouse signs a Spousal Refusal letter stating that s/he will not support the ill spouse. The same Spousal Refusal letter is frequently signed where the ill spouse is in a nursing home. By the well spouse's signing a Spousal Refusal letter, the ill spouse will become Medicaid eligible if s/he is within the Medicaid resource guidelines. Medicaid, however, reserves the right to sue the well spouse for support of the ill spouse and recovery of that which Medicaid paid. One must assume that is he or she has excess assets and excess income that he or she will be sued by Medicaid.  When performing Medicaid planning, consider your personal needs; your desire to maintain independence and control of your assets; your family situation and whether you feel secure transferring assets to your children (is a divorce or bankruptcy in the offing?); and tax implications.

Use caution in Medicaid planning: The Medicaid regulations and procedures are constantly changing. When doing Medicaid planning, anticipate possible changes and be aware of current developments in Medicaid laws.

Do you know that under MEDICAID German and Austrian Holocaust Reparation Payments are exempt as income and a resource? Reparation payments from Germany are not counted as either income or resources, nor are payments from Austria, which are called Social Security, but in fact are Reparations.

In order to have Austrian and German Reparations exempted, the assets must be separately identifiable. Therefore, among other ways of identifying such funds, it is essential that recipients keep accurate files of copies of all checks received, the check stubs and copies of all correspondence. Also note: Payments to Vietnam war veterans under the Agent Orange settlement fund and World War II restitution payments to Japanese Americans are also exempt.

C. Tax Planning:

How am I going to reduce estate taxes?

1. Gifts while alive. $10,000 per year. The annual exclusion amount is indexed for inflation and is projected to increase to $11,000.00 in 2002. To minors, the amount can be given to a custodial account for the minor or to a 2503(c) Trust to which the child has a right only upon obtaining the age of 21. Planning strategy: Place annual gifts into a 2503(c) Trust; give the beneficiary the right to take all funds within 90 days of attaining the age 21 (Trustee must give notice of right to the funds) and if funds not taken within 90 days of notification, the Trust remains irrevocable for a stated period of time with periodic payments to the beneficiary. Protects in event of divorce or financial immaturity or naiveté of beneficiary. Caution: the donor should not (for estate tax reasons) be the custodian of a custodian account for a minor nor of a 2503(c) Trust.

2. Asset Registration. Check how assets are registered. Do the registrations follow the estate plan? For instance, if the assets are held "jointly," e.g., with one child and not with other children, but the will leaves property equally among all children, the assets will "follow" the joint account registration and not the will. Check life insurance, IRAs and pension. Who is the beneficiary? Who is the contingent beneficiary? Do the beneficiary designations meet the estate planning goals, including the tax planning goals?

3. Division of assets between husband and wife to obtain maximum effect of credit shelter ( i.e., the protection of the $1,000,000  and eventually there will be no estate tax in the year 2010; however, the estate tax will go back into effect in the year 2011) amount that can pass free of federal estate taxes.  In the year 2002 and 2003, one is able to give away $1,000,000.00, plus the, apparently, $11,000.00 per person per year. The amount of the credit for estate taxes increases  in 2004 and 2005 to $1,500,000;in 2006, 2007, and 2008 to $2,000,000; in 2009 to $3,500,000 and in 2010, there will be no estate taxes.  On December 31, 2010 (at midnight), the $1,000.000.00 goes back into effect.  However, should one spouse give his/her assets to the other spouse, there is a loss of one tax credit in what can be given away estate tax free. Therefore, rather than the couple being able to give away tax free in their estates a total of $2,000,000.00, as a result of the asset transfer, only a total of $1,000,000.00 will be able to be given away, at a loss to the heirs of taxes in the sum of $435,800.00 (which may be greater than the cost of a nursing home) in an estate of $2,000,000.00. Therefore, care must be taken to consider the estate tax consequences of Medicaid planning. On the other hand, with proper planning, estate taxes in certain circumstances can be saved by the making of significant gifts during life.  The amount that can be given away by gift does not increase over these years beyond the $1,000,000.00.

Planning strategy: create a flow chart. Calculate (i) upon the death of the first to die, how much property will the second to die have and (ii) what property will not pass to the second to die. Remember: joint accounts, totten trusts and payable upon death accounts do not follow the last will and testament. Therefore, if Will states the maximum amount possible is to be placed into a credit shelter, consider amount of assets which will go into the credit shelter. Eliminate all jointly held and beneficiary accounts, if necessary, to fund the credit shelter. Planning strategy: consider post-mortem planning and give trustees, executors and agents under a power of attorney the right to disclaim.

4. Wills with Credit Shelter Testamentary Trusts or Living Trusts which retain a portion as the credit shelter. Consider: disclaimer Trusts.

5. Life insurance Trusts with Crummy powers. Permits the $10,000 ($11,000.00) gift to be placed into a Trust. Children have the right to receive the funds for only a designated period of time. Thereafter, if they do not take the money, e.g., at the end of 90 days after each annual gift, children lose the right of withdrawal until the termination of the Trust, usually at the death of the parent. The funds in the Trust are generally used for the purchase of life insurance. Upon the death of the parent, the entire corpus of the Trust goes to the children income and estate tax free. Life insurance Trusts are frequently used for payment of estate taxes and administration expenses (especially when the estate consists of substantial real estate or business interests), the replacement of funds donated or bequeathed to charity. Can increase amount to heirs by a combination of a life insurance Trust and charitable giving for an income tax and estate tax reduction. Caution: if life insurance is placed into the Trust, rather than purchased by the Trust, can take up to three years before receiving the estate tax benefits from a life insurance trust. Planning strategy: use life insurance Trust and leave charitable bequest in Will and/or Trust; include in power of attorney the authority to make charitable gifts consistent with estate plan and receive added tax benefits by reducing the estate prior to death and receive an income tax reduction. Can be used in combination with a CRAT or CRUT (charitable remainder trusts).

6. Charitable gift planning. Consider charitable gifts in wills. Consider the tax advantages of leaving IRAs to a charitable trust, with the income to a spouse, children and/or grandchildren. Or, a charitable trust funded with highly appreciated assets, with income to oneself and one's spouse. Include in power-of-attorney the authority to make charitable gifts consistent with the provisions of the will to produce income tax savings, in addition to reducing the size of the estate.

Supplemental Needs Trusts are for planning for disabled children, whether minor or adult children. Useful because the child (minor or adult) remains on Medicaid while retaining government benefits, e.g., Medicaid and SSI social policy permits parent to place all funds into Supplemental Needs Trust for disabled child and then for parent to go on Medicaid without any waiting period.

Jay J. Sangerman, PLLC
171 East 84th Street, Unit 21B
New York, New York 10028
212-439-0056 - facsimile