Advanced Document Drafting for the Elder Law Attorney David J. DePinto, Esq., LL.M., CPA, CELA Elective Share Elective Share Issues for Non-Ill Will

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1 Advanced Document Drafting for the Elder Law Attorney David J. DePinto, Esq., LL.M., CPA, CELA DePinto Law Associates, P.C. 445 Broad Hollow Road Suite 230 Melville, New York (631) Elective Share NY elective share statute is designed to protect the surviving spouse from being disinherited from the other spouse s Will (EPTL A). The greater of $50,000 or 1/3 of the net estate. Must be made within six (6) months of issuance of letters but before two (2) years of death. Defenses: Prenuptial Agreement or Waiver Abandonment 2 Elective Share Issues for Non-Ill Will Disinherit Spouse and leave to children Testamentary Supplemental Needs Trust for Ill Spouse Sample Language for Will: Notwithstanding anything herein to the contrary, my Executor shall have the authority to distribute from my estate, prior to the funding of any trust(s) hereunder, the elective share of my spouse under New York law, but only if such election is made by my spouse, and the balance of my estate shall be divided, managed and distributed in accordance with the provisions herein. Promissory Note Planning for 1/6th Revocable Living Trust for Community Spouse Elective share in Guardianship context duty to elect? 3 1

2 Typical Trusts Revocable Living Trust Irrevocable Medicaid Trust Self-Settled Supplemental Needs Trust (SNT) Third party Supplemental Needs Trust (SNT) Estate Trust 4 Typical Trusts Inter vivos Trust Testamentary Trust 5 Credit Shelter Trust Available resource? Testamentary Credit Shelter Trust Required HEMS (health, education, maintenance and support) AVAILABLE Spouse as Trustee has unrestricted access AVAILABLE AND TAXED IN ESTATE Non-spouse Trustee has pure and sole absolute discretion (NOT AVAILABLE under 96 ADM-8) 6 2

3 Credit Shelter Trust Available resource? Inter vivos Trust Revocable Living Trust If Credit Shelter Trust created under Revocable Living Trust, then it is not testamentary under 18 NYCRR and therefore not a third party trust under 96 ADM-8. Corpus is available provided spouse is a principal beneficiary. If Supplemental Needs Trust under Revocable Trust cannot use for spouse (EPTL (a)(5)(iv) Consider paying to testamentary Credit Shelter Trust or Supplemental Needs Trust under Will instead. 7 Medicaid Trust for Estate and Income Example: Married individuals with $2 million ($1 million cash; $1 million house with $40,000 basis) Avoid joint Medicaid Trusts step-up issues/estate tax on second to die Two (2) separate typical Medicaid Trusts One (1) for husband and one (1) for spouse Put $1 million in each trust (1/2 house; 1/2 cash) Pass to trust not included in estate of surviving spouse No principal to spouse to avoid Medicaid availability Obtain one-half (1/2) step-up in basis on house at first death 8 Medicaid Trust for Estate and Income Example: Unmarried individual with $2 million ($1 million cash; $1 million house with $40,000 basis) Completed gift to Irrevocable Trust Transfer high basis assets No step-up No income to Grantor No special power of appointment in Grantor Limit ability to change trustee to IRC 672(c) No payment of funeral or administrative expenses of Grantor 9 3

4 Medicaid Trust for Estate and Income Example: $2 million estate: NY estate tax is $99,600. After gifting $1 million and dying $1 million: NY estate tax is $33,200 Tax Savings: $66,400* After gifting all $2 million and dying with $0: NY estate tax is $0. Tax Savings: $99,600* *Caveat: This only works well with high basis assets due to capital gains rates and NYS income tax. 10 Life Estates v. Use & Occupy Classic example: Second marriage testator owns house; life estate in Will can be severed and cashed out by surviving spouse (In re. the estate of Sally E. Sauer, November 18, 2002 [November 18, 2002]). Use and occupancy clause instead Add 60, 90 or 120 day vacancy clause 11 Specific Bequests Tangible personal property so as not to pass out DNI Options for disputes over tangible personal property: Draw straws By age Discretion of one Lottery Auction Real Estate passes to heirs at law without administration proceeding if the only asset of estate under RPAPL Need to probate Will if only heirs? Not commissionable to executor Watch furnishings clause Cash gifts Debt of estate (EPTL ); subject to priority of other creditors (SCPA 1811) Funeral Administration expenses (Attorney fees) 12 4

5 Tax Allocations Ask client if specific bequest is to bear tax or not Default is it does under EPTL Charity and QTIP trusts NEVER should bear estate tax 13 Circular 230 Disclosure The Treasury Department has newly promulgated Regulations effective June 20, 2005, that applies to those attorneys and accountants (and others) practicing before the IRS that require such individuals to provide extensive disclosure in certain written communications to clients. In order to comply with our obligations under these Regulations, we want to inform you that since this communication is not intended to and does not contain such disclosure, you may not rely on any tax advice contained in this document to avoid tax penalties 14 5