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New York Real Estate & Estate Planning Blog

Monday, April 10, 2017

Testamentary Substitutes

In states that have “elective share statutes,” a surviving spouse is legally entitled to a certain percentage of the deceased's estate, even if that spouse has attempted to disinherit or to provide a lesser bequest, or gift, under the will.  In “separate property” states, an elective share statute is likely to be in effect.  If the estate in question is valued at $50,000 or less, the elective share is likely to be the actual amount of the net estate.  

“Testamentary substitutes” are removed from particular assets that would otherwise pass to the surviving spouse.  Assets passing by will or through intestacy could cause a reduction in the elective share amount as well.  Totten trusts, such as Payable-On-Death Bank Accounts (PODs), Retirement or joint bank accounts, gifts causa mortis ("gifts made by the decedent in contemplation of death,”) U.S. savings bonds, jointly held property, and gifts or transfers that were made approximately one year prior to death, are some examples of testamentary substitutes. 

If a gift was made about one year prior to death, yet involves medical or educational expenses, then the gift may not qualify as a true testamentary substitute.  With regard to PODs, the spouse, offspring, or grandchildren will be named as beneficiaries.  The funds of a POD are only distributed upon the decedent’s death.   Testamentary Trusts are listed in the will until the designated property passes to the trust upon the testator’s death.  

Generally, a gift causa mortis is only active upon the decedent’s expected death and is typically revocable.  Moreover, certain elements must exist to create a valid gift causa mortis.  These include an intent to create “an immediate transfer of ownership,” valid delivery, acceptance of the gift by the donee, and the donor’s “anticipation of imminent death.”  There are also certain circumstances by which gifts causa mortis are not valid.  For example, if the donee passes away before the donor, it is unlikely that a property interest was transferred.  Gifts causa mortis are also taxed as if the testator had listed the gifts in his or her will. 

In such cases, testamentary substitutes are generally put back into the net estate total to determine the elective share amount that the surviving spouse will collect.  The aforementioned may vary if property is held jointly, as joint tenants or otherwise, because the spouse may have a right of survivorship in the property.  Estate planning attorneys are aware of all the ins and outs of testamentary substitutes and how they may affect the distribution of your assets.  It is useful, if not essential, to consult with a knowledgeable attorney when making arrangements regarding testamentary substitutes.


Monday, March 27, 2017

An Overview of Foundational Corporate Documents

There are a number of steps involved in forming a corporation from selecting a name, obtaining the necessary licenses and permits, paying certain fees, and filing foundational documents with the appropriate state agency. While an attorney can help prepare and file the required papers, the owners, officer and directors should have a basic understanding of these documents.

Articles of Incorporation

The first underlying document is the Articles of Incorporation which states the corporate name, and the  purpose of the business. This is typically a generic statement to the effect that the corporation will conduct any lawful business in the state in accordance with its objectives.  In addition, the type and amount of stock that will be issued (common or preferred) must be established. This document should contain any other pertinent information, including the name and address of a registered agent.

Corporate By-laws

By-laws are the formal rules regarding the day-today operations of a corporation. This document outlines the corporate structure and establishes the rights and powers of the shareholders, officers and directors. By-laws specify how officers and directors are nominated and elected as well as their responsibilities. In addition this document should clarify how disputes among the parties will be resolved. By-laws establish where and when meetings will be held, whether quarterly, annually or at other times, what constitutes a quorum, as well as voting and proxy rules. Lastly, this document should also contain information on the issuance of shares of stock and other operational details.

Meeting Minutes

After the corporate existence has begun, an initial organizational meeting of the principals must be held in order to adopt by-laws, elect directors, issue stock, and to conduct any other business. All of these activities must be memorialized in meeting minutes, which must also be prepared during any subsequent meetings.

Stock Certificates

Stock certificates are the record of any stock that was initially issued.

Once these foundational documents are in place, a corporation is also required to keep complete and accurate books and records of account and must maintain a record containing the names and addresses of all shareholders. All of these documents may fall under different names and the applicable laws vary from state to state. Because this is a complicated process and one that requires careful analysis, you are well advised to engage the services of an experienced business law attorney to help prepare and file the necessary foundational documents.


Monday, March 20, 2017

Preventing Will Contests

So, you have a will, but is it valid?  A will can be contested for a multitude of reasons after it is presented to a probate court.  It is in your best interest to have an attorney draft the will to prevent any ambiguity in the provisions of the document that others could dispute later. 

A will may be targeted on grounds of fraud, mental incapacity, validity, duress, or undue influence.  These objections can draw out the probate process and make it very time consuming and expensive.  More importantly, an attorney can help ensure that your property is put into the right hands, rather than distributed to unfamiliar people or organizations that you did not intend to provide for. 

At the time you executed the will, you must have been mentally competent, or of “sound mind.”  A court will inquire as to whether you had full awareness of what you were doing.   There will also be an inquiry into your understanding and knowledge of the assets in your name.  If, at the moment you executed the will, you were pressured or influenced by another individual to sign the document, it may be invalidated. 

If the document was signed under duress or undue influence, the provisions are likely to be against your intentions or requests.  Moreover, if you are trying to nullify a will on your own behalf, you are likely to need an attorney because it is very difficult and complicated to demonstrate the existence of duress, fraud, or undue influence.   If drafting a new will, counsel can ensure that your document abides by all of the validity requirements, so the will’s provisions can successfully carry out your intentions after your death.

For example, the will creator or “testator,” is usually required to sign the document before several witnesses who are over the age of eighteen, during a certain period of time.  A will or a certain bequest to a person could be deemed void if the beneficiary was also a witness.   In your state, you may be able to execute a “self-proving affidavit,” which may do away with some of the requirements in order to establish a valid will.  The testator should also designate a person to execute the document.  Consult your attorney to ensure that your will comports with your state’s particular laws and is sustainable against any future contests.  

 


Monday, March 6, 2017

The Revocable Living Trust

There are many benefits to a revocable living trust that are not available in a will.  An individual can choose to have one or both, and an attorney can best clarify the advantages of each.  If the person engaged in planning his or her estate wants to retain the ability to change or rescind the document, the living trust is probably the best option since it is revocable. 

The document is called a “living” trust because it is applicable throughout one's lifetime.  Another individual or entity, such as a bank, can be appointed as trustee to manage and protect assets and to distribute assets to beneficiaries upon one's death. 

A living trust will also protect assets if and when a person becomes sick or disabled.  The designated trustee will hold “legal title” of the assets in the trust.  If an individual wants to maintain full control over his or her property, he or she may also choose to remain the holder of the title as trustee. 

It should be noted, however, that the revocable power that comes with the trust may involve taxation. Usually, a trust is considered a part of the decedent’s estate, and therefore, an estate tax applies.  One cannot escape liability via a trust because the assets are still subject to debts upon death.  On the upside, the trust may not need to go through probate, which could save months of time and attorneys' fees. 

The revocable living trust is contrary to the irrevocable living trust, in that the latter cannot be rescinded or altered during one's lifetime.  It does, however, avoid the tax consequences of a revocable trust.  An attorney can explain the intricacies of other protections an irrevocable living trust provides. 

Anyone who wants to keep certain information or assets private, will likely want to create a living trust.  A trust is not normally made public, whereas a will is put into the public record once it passes through probate.   Consulting with an attorney can help determine the best methods to ensure protection of assets in individual cases.   


Monday, February 27, 2017

Common Types of Will Contests

The most basic estate planning tool is a will which establishes how an individual's property will be distributed and names beneficiaries to receive those assets. Unfortunately, there are circumstances when disputes arise among surviving family members that can lead to a will contest. This is a court proceeding in which the validity of the will is challenged.

In order to have standing to bring a will contest, a party must have a legitimate interest in the estate. Although the law in this regard varies from state to state, the proceeding can be brought by heirs, beneficiaries, and others who stand to inherit. While these disputes are often the result of changes to the distribution plan from a prior will, some common types of will contests are as follows.

Lack of testamentary capacity

The testator, that is the person making the will, must have the mental capacity and be of sound mind at the time the will is executed , modified or revoked. Further, being of sound mind means that the testator knows what property he or she owns and understands the effect of executing the will. Although these are considered to be low standards, claims that the deceased lacked the mental capacity when the will was executed are common.

Undue influence

If the deceased was coerced into executing the will, it may be considered invalid. In order to ensure that the testator is not subjected to undue influence, the will should be prepared by an attorney. Moreover, heirs and beneficiaries should not take part in meetings and discussions between the testator and his or her attorney.

Will improperly executed

There are certain formalities that must be followed in order for a will to be considered validly executed. While some states require a notarized signature, others insist on a certain number of witnesses being present when the will is executed. If these formalities are not strictly followed, the will may be found to be improperly executed.

Fraud

A will can also be considered invalid if a person is intentionally deceived when preparing and executing the document.

The Takeaway

If a will is successfully contested, it can be declared invalid by the court. This means that the assets will be distributed either according to the terms of a prior will or if no such will exists, the state's intestacy rules. Ultimately, engaging the services of an experienced estate planning an attorney can minimize the risk of a will contest.


Monday, February 13, 2017

Do I need an attorney if I am buying a home?

Buying a home can be an exciting experience, but the process can be complicated. While some homebuyers may think hiring an attorney will be too expensive, not having proper legal representation can be even more costly. Although real estate agents typically bring buyers and sellers together, a highly skilled attorney can perform critical due diligence, anticipate problems, and be your advocate at the closing table.

It's often been said that real estate is all about the price and "location, location, location," but there are a number of factors to consider such as purchase and sales contracts, home inspections, title issues as well as arranging for financing. An experienced real estate attorney who knows the local housing market can help a buyer navigate these issues and protect his or her investment.

Once a buyer selects a home, it is crucial to have an attorney review or prepare a contract of sale. In short, a contract must adhere to all state and local laws, address issues about the use of the property, and specify the rights and obligations of each party. In some states, the buyer and seller have a limited time to review the contract before it becomes legally binding.

In addition to price and location, it is essential for the structure of the dwelling and its heating, cooling and electrical systems to be in good condition. An attorney can coordinate a home inspection to ensure that any defects are repaired prior to the closing or arrange to have the seller reimburse the borrower from the proceeds of the sale.

In some cases, an attorney can also perform a title search to verify that property is being sold free of any liens, judgments or other encumbrances. If outstanding items need to be paid before the deal closes, there can be costly delays, especially for buyers who are simultaneously selling an existing home. Lastly, after the closing, the deed must be filed in the county in which the property is located, which can easily be handled by an attorney.

Ultimately an attorney can protect a homebuyer's interests, anticipate and resolve problems and help to avoid conflicts. Because buying a home is the largest financial transaction that many individuals will ever undertake, the role of an attorney cannot be underestimated.


Monday, January 23, 2017

Top Five Estate Planning Mistakes

In spite of the vast amount of financial information that is currently available in the media and via the internet, many people either do not understand estate planning or underestimate its importance. Here's a look at the top five estate planning mistakes that need to be avoided.

1. Not Having an Estate Plan

The most common mistake is not having an estate plan, particularly not creating a will - as many as 64 percent of Americans don't have a will. This basic estate planning tool establishes how an individual's assets will be distributed upon death, and who will receive them. A will is especially important for parents with minor children in that it allows a guardian to be named to care for them if both parents were to die unexpectedly. Without a will, the courts will make decisions according to the state's probate laws, which may not agree with a person's wishes.

2. Failing to Update a Will

For those who have a will in place, a common mistake is to tuck it away in a drawer and be done with it. Creating a will is not a "once and done" matter as it needs to updated periodically, however. There are changes that occur during a person's lifetime, such as buying a home, getting married, having children, getting divorced - and remarried, that need to be accurately reflected in an updated will. Depending on the circumstances, a will should be reviewed every two years.

3. Not Planning for Disability

While no one likes to think about becoming ill or getting injured, an unexpected long-term disability can have devastating consequences on an individual's financial and personal affairs. It is essential to create a durable power of attorney to designate an individual to manage your finances if you are unable to do so. In addition, a power of attorney for healthcare  - or healthcare proxy, allows you to name a trusted relative or friend to make decisions about the type of care you prefer to receive when you cannot speak for yourself.

4. Naming Incapable Heirs

People often take for granted that their loved ones are capable of managing an inheritance. There are cases, however, when a beneficiary may not understand financial matters or be irresponsible with money. In these situations, a will can appoint an professional to supervise these assets, or in the alternative a "spendthrift trust" can be put in place.

5. Choosing the Wrong Executor

Many individuals designate a close relative or trusted friend to act as executor, but fail to consider whether he or she has the capacity and integrity to take on this role. By choosing the wrong executor, your will could be contested, leading to unnecessary delays, costs and lingering acrimony among surviving family members.

The Takeaway

In the end, estate planning is really about getting your affairs in order. By engaging the services of an experienced trusts and estates attorney, you can avoid these common mistakes, protect your assets and provide for your loved ones.

 


Monday, January 16, 2017

Making Decisions About End of Life Medical Treatment

While advances in medicine allow people to live longer, questions are often raised about life-sustaining treatment terminally ill patients may or may not want to receive. Those who fail to formally declare these wishes in writing to family members and medical professionals run the risk of having the courts make these decisions.

For this reason, it is essential to put in place advance medical directives to ensure that an individual's preferences for end of life medical care are respected. There are two documents designed for these purposes, a Do Not Resuscitate Order (DNR) and a Physician Order for Life Sustaining Treatment (POLST).

What is a DNR?

A Do Not Resuscitate Oder alerts doctors, nurses and emergency personnel that cardiopulmonary resuscitation (CPR) should not be used to keep a person alive in case of a medical emergency. A DNR is frequently used along with other advance medical directives by those who are critically ill and prefer not to receive life sustaining treatment.

What is a Physician Order for Life Sustaining Treatment (POLST)?

A Physician Order for Life Sustaining Treatment is similar to a DNR,  however a POLST is prepared by a patient's doctor after discussing end of life treatment options. This is not a legal document prepared by an attorney, but rather a binding doctor's order that is kept with a patient's medical records. A POLST declares a patient's preference for receiving certain life sustaining treatments, as well as treatment options the patient does not want to receive or to be continued.

Examples of these treatments include, but are not limited to, artificial nutrition and hydration, intubation and antibiotic use. These decisions should be made when there is no medical crisis that can affect an individual's decision making, after various treatment options have been discussed with his or her doctor. In short, a POLST ensures that a patient will receive appropriate treatments, but not be subjected to life sustaining measures the patient does not want.

By having these advance medical directives in place, a person can have peace of mind knowing that he or she will receive end of life treatment according to his or her wishes, and loved ones will not be forced to go to court to obtain the right make these decisions.

 


Monday, January 9, 2017

Responsibilities and Obligations of the Executor/ Administrator

When a person dies with a will in place, an executor is named as the responsible individual for winding down the decedent's affairs. In situations in which a will has not been prepared, the probate court will appoint an administrator. Whether you have been named  as an executor or administrator, the role comes with certain responsibilities including taking charge of the decedent's assets, notifying beneficiaries and creditors, paying the estate's debts and distributing the property to the beneficiaries.

In some cases, an executor may also be a beneficiary of the will, however he or she must act fairly and in accordance with the provisions of the will. An executor is specifically responsible for:

  • Finding a copy of the will and filing it with the appropriate state court

  • Informing third parties, such as banks and other account holders, of the person’s death

  • Locating assets and identifying debts

  • Providing the court with an inventory of these assets and debts

  • Maintaining any assets until they are disposed of

  • Disposing of assets either through distribution or sale

  • Satisfying any debts

  • Appearing in court on behalf of the estate

Depending on the size of the estate and the way in which the decedent's assets were titled, the will may need to be probated. If the estate must go through s probate proceeding, the executor must file with the court to probate the will and be appointed as the estate's legal representative.

By doing so, the executor can then pay all of the decedent's outstanding debts and distribute the property to the beneficiaries according to the terms of the will. The executor is also is also responsible for filing all federal and state tax returns for the deceased person as well as estate taxes, if any. Lastly, an executor may be entitled to compensation for the time he or she served the estate. If the court names an administrator, this individual will have similar responsibilities.

In the end, being name an executor or appointed as an administrator ultimately means supporting the overall goal of distributing the estate assets according to wishes of the deceased or state law. In either case, an experienced probate or estate planning attorney can help you carry out these duties.


Monday, June 27, 2016

The Risks of Tenant-in-Common Investments

Historically, tenant in common (TIC) projects were owned by a relatively small group of investors who knew each other, such as long-time friends, business partners or family members. Strategies to maximize tax savings and preserve equity typically guided investors to this type of structure, rather than creating a limited liability company or partnership to own the property.

In the late 1990s, real estate sales in the form of tax-deferred 1031 exchanges created a new industry. Promoters began soliciting and pooling funds from investors to purchase real estate. Participation in the pool helped investors find replacement property to guarantee their capital gains tax deferment continued.

In 2002, the IRS clarified when this type of pooling is considered a partnership interest as opposed to a TIC interest, a critical distinction for investors using funds from a 1031 exchange transaction. Following that, investments in TIC interests grew considerably due to the numerous advantages. For those who needed a place to invest their 1031 exchange funds quickly, TIC interests provide a relatively simple way to ensure the funds are spent within 180 days of the sale of the previous property, without the hassle of researching, investigating, negotiating and financing a property in less than six months. TIC investors do not have to burden themselves with the day-to-day management of their investment property. Finally, TIC investors can pool their resources to purchase fractional shares of investment-grade property which would otherwise be out of reach.

With all of its advantages, the TIC interest also carries its share of risks. For example, many TIC promoters charged fees that were excessive, or sold the property to the investors for more than it was worth. If property values decline or purchase loans mature, it may be difficult to refinance, forcing the property into foreclosure and taking the entire investment with it.

Other promoters failed to maintain reserve funds separate for each property. If a promoter filed for bankruptcy and did not properly use the reserve funds, TIC investors were left with no recourse and were forced to cover the reserves out of their own pockets or risk losing their investment.

Further risks are caused by the investors themselves and the nature of their relationship to one another – or lack thereof. Owners of TIC typically do not know each other. Decisions regarding TIC governance often require unanimous agreement by all owners, and just one objection can grind the action to a halt. When owners don’t know each other, or are spread across many states, it can be difficult to communicate and obtain a unanimous agreement.

Despite the risks, TIC interests can still be a good place to park your money – but you must be a cautious, diligent purchaser. Visit the property, seek information from sources other than the promoter, and carefully review the past and projected financial data.
 


Monday, June 20, 2016

What does "goodwill" mean when buying a business?

Goodwill is an asset that is an intangible part of a business being purchased. In spite of its intangibility, goodwill may be worth more than concrete assets, such as property, buildings, machinery or inventory. Goodwill is the essence of the company's value to its customers, clients, and employees and, as such, is invaluable to any buyer. It is easier, as many people intending to purchase a business will tell you, to maintain goodwill than to establish it, since, among other things, goodwill takes time to build. Purchasing a business that already has established goodwill in the community can give the new owner a strong competitive edge. 

What Intangible Assets Compose Goodwill? 

Prospective buyers and sellers should be aware of the various aspects of goodwill. Not all will apply to every business, but aspects of goodwill include:

  • Brand name
  • Solid customer base
  • Good customer relations
  • Good employee relations
  • Patents or proprietary technology
  • General reputation
  • Future sales projection

 

Goodwill is a saleable asset, presumed to generate sales revenue and customer continuity. Having been established over years of honest and efficient behavior by the previous owner, it is transferable to the buyer, assuming the buyer maintains the pre-established excellent business practices.

 

 How Is Goodwill Established?

 

As mentioned, goodwill can only be established over a period of years during which it is nourished and maintained. In business, it is assumed that expenditures have been involved in creating and preserving goodwill. Steps taken to do this include: 

  • Healthy and continuous investment in promotion
  • Maintenance of necessary quantity of high quality customer supplies
  • Support of excellent relationships with both customers and suppliers
  • Maintenance of efficient and respectful management and employees relationships
  • Establishment and maintenance of corporate identity and image
  • Keeping up an appropriate location

How Is Goodwill Evaluated?

 There is no set price for goodwill, though it very definitely features in sales negotiations. Generally speaking, goodwill is reflected in the amount in excess of the firm's total value of assets and liabilities. In well-established businesses, goodwill may be reflected in a price several times higher than the firm's physical assets alone would be reasonably worth.

There are several complex methods by which business goodwill can be calculated so it is essential to have a highly competent business attorney involved in the negotiation process. 


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John P. Rosenblatt, Attorney at Law assists clients in Nassau County, Suffolk County, the Five Boroughs, the NY Metro Area, Westchester County, Putnam County, Orange County, Dutchess County and Rockland County.



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