estate planning - Trust and Estate Planning Law Office

Why You Should Review Your Estate Plan Before A Second Marriage

It is becoming increasingly common for people to remarry and create blended families. When blended families are created, estate planning becomes a little more complicated. Estate planning for a blended family can be complicated because each spouse may want to provide for each other, their biological children, and maybe even their step-children/adopted children after their death. If this sounds like your family, you should proceed cautiously and read ahead for some guidance on estate planning.

Estate Planning Considerations Before a Second Marriage

A remarriage may create a unique set of legal questions. People assume that their adult children will automatically inherit their assets when they pass away. People make this assumption because most of their property and assets have been spent with their previous spouse, who was possibly a co-parent to the children, and the one who may have helped to build or sustain the family assets.

However, a new marriage means that the family property is governed by the laws of the new marriage. If there is no prenuptial agreement with the new spouse and they survive you, then they would inherit at least one-third of the estate according to New York laws. This means that your adult children from a previous marriage might be in for a rude awakening. A large part of the children’s inheritance might be gone due to the new spouse’s right to inherit one-third of their spouse’s estate.

In order to avoid confusion and possible heartache in the future, have these discussions with your family now. Consulting an experienced estate planning attorney will help with deciding the best ways to make sure your wishes are carried out.

Elective Shares

As stated earlier, if a spouse dies, then the surviving spouse has a right to inherit a one-third share of the deceased’s estate. This is what’s known as an elective share. By law, a spouse cannot be disinherited unless they willingly choose to be. The only way that a surviving spouse can be disinherited completely is through a prenuptial agreement, where each spouse can agree to waive any claims to an elective share of one another’s estates.

Your elective estate includes not just property in your name alone, but also most assets with beneficiary designations such as bank accounts, securities, IRA accounts, the cash value of life insurance, etc. Essentially, you would not be able to easily ignore your spouse’s rights to their elective share. One may assume that if assets are left in a trust for a child then it would be difficult for the surviving to claim their shares. However, the surviving spouse can still file a probate proceeding and possibly force the child to return the assets to satisfy the elective share law.

Prenuptial Agreement Before The Next Marriage

It’s important to recognize that a prenuptial agreement does not mean that a couple will be planning to get a divorce, or that spouses do not trust one another. Rather, couples are recognizing the importance of their upcoming legal commitment to marriage. Older clients who remarry often have important financial obligations from previous relationships such as alimony or child support payments. They may also have hard-earned estates they wish to leave to children from previous relations. In order to provide a solid foundation for their future marriage, people should consider sorting through their finances. By signing a prenup, couples are communicating their concerns for the future financial security of their other relatives and are expressing their respect for the hard-earned assets and accomplishments of their future spouse.

Review Your Estate Plan Before Remarrying

Before getting remarried it is important to focus on redoing your estate plan. During your first marriage, you may have created an estate plan, however this time it might be more complicated, especially if you have children from your first marriage and/or you have since then acquired more valuable assets. Here are some of the best methods we recommend to ensure that your interests are met when you remarry:

Take Stock. You and your soon to be spouse should take an inventory of your individual and/or shared assets and debts. Make sure to include life insurance policies and retirement plans in your stockpile. And be sure to disclose to each other all of this. It is best to be open and honest about money with your spouse.

Financial Management Decision. Once you know what both of you are worth financially, then you two need to decide if you want to combine (or not combine) assets when you are married. For example, if one spouse has significant debt (ie. student debts) you may not want to combine finances or make any joint purchases. These decisions need to be made upfront so everyone is clear on what to expect.

Discuss Who Will Receive What. You and your future spouse need to figure out who will receive your estate when you die. This can be complicated discussion if you have children from a previous marriage. By law, if you leave all your assets to your new spouse, there are no guarantees that your new spouse will be required to provide for your children. If you would like to ensure your children are provided for, there are numerous options available. Some of these options include: creating a trust for your children, naming your children as beneficiaries on life insurance policies, or explicitly giving your children joint ownership of a property. If any of these options sound appealing for your case, consult an estate planning attorney for which option is best.

Double Check Beneficiaries. If you have a previous estate plan created, you should double check who you named as the beneficiaries on your life insurance policy, and/or retirement plan. Upon reviewing, you may want to change who you previously named. However, if you are divorced, you may not be able to change some of the beneficiaries. When you return to your estate planning attorney, be sure to bring your divorce decree so they can make sure you do not violate the decree. If it is the case that you can not change your beneficiaries, you can buy additional life insurance or retirement plans where you can include your new spouse or future children.

Consult An Estate Planning Attorney. Before you remarry and if you have an existing estate plan, you should definitely consider updating your last will. You might also need to update or even create other estate planning documents like a durable power of attorney and a health care proxy.

Before or maybe after consulting an attorney, be sure to be open and honest to your family members and loved ones about your wishes so there are no surprises. If you would like to review and create a new estate plan before remarrying, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

The Importance of an Elder Law Attorney

As we get older, we come to see some obstacles that our aging family members face. Oftentimes, no one prepares you for what to do when you reach your late stages of life. Healthcare, financial well-being, and long term care are commonly thought of when considering the next steps for your aging loved ones. However, it may be overwhelming to figure out all this on your own. At times like this, it is extremely helpful to visit an elder law attorney. But what exactly is an elder law attorney?

An elder law attorney focuses on assisting the older population and their loved ones. They focus on covering a wide variety of issues that the aging population face or will face. Going to an elder law attorney for a consultation to discuss future needs and what seems to be the best for you or your family may help you gain further insight on what may be needed to better your lives. They can help evaluate your current situation as well as exploring options for the future. Some common work elder law attorneys do is:

Trusts and wills
Estate planning and probate*
Nursing home planning and long term care
Medicaid and Social Security assistance
Elder abuse

* Most elder law attorneys are also esteemed at estate planning but not all estate planning lawyers are accomplished elder law attorneys so make sure to check out client reviews

By having an elder law attorney by your side, you can save time, money and avoid getting into future legal trouble. Since the laws surrounding the elderly are different in each state, it is pivotal to find an elder attorney that is knowledgeable and well-versed in their field. A skillful elder law attorney should be able to alleviate your worries about your future and you should feel as if you are in good hands. Follow this link to see some actual cases that have been alleviated by elder law attorney, Inna Fershteyn.

In addition, it is also important to know that there is no right or wrong age to meet with an elder law attorney. It is a common assumption that people have when thinking about elder law attorneys. For those in their thirties to fifties, visiting an elder lawyer may help with protecting your wealth and assets for the future. They can also have more options for you since you have the benefit of a head start. You do not necessarily have to be “old enough” or a senior to seek an elder law attorney.

If you or a loved one is looking for guidance to put your mind at ease for the future, a consultation from an adept elder law attorney should help. Please contact the Law Office of Inna Fershteyn at (718) 333-2395 to secure your road for the future today.

How to include children from prior marriages in a will?

When remarrying, it is a time to celebrate and be joyous of a new chapter in your life with a new family. However, most people do not think about estate planning during times of celebration. Having a blended family may make room for some unexpected challenges as you may want both families to take part in your estate plan. In the case that you have children from a previous marriage that you want in your estate plan, it may seem confusing and overwhelming to tackle.

If possible, you can leave your assets to your newly married spouse and hope that they will divide your assets among all your children. However, it is also possible that your spouse will not respect your wish. Before getting remarried, it is important to review or redo your estate plan. By doing so, it can clear up any possible future confusions.

Take Inventory of your Assets

- With your new spouse, you can take an inventory of your assets and debts. This can include your retirement plans and insurance policies. By being fully honest and open, you will allow your family to have better conversation and no possible hard feelings.

Decide Where You Want your Assets To Go To

- You can decide with your new spouse if you want to combine your assets or not before you get married again. By doing so, it can be clear to everyone on where the assets are going to and who it is going to.

Decide on what option you would like to secure your children’s inheritance

- There are multiple options to ensure that your children will get their designated share of inheritance:
  - Creating a trust specifically for your children
    - This allows you children to have exclusive and specific rights to hold and manage whatever benefits they will get from you.
  - Making your children beneficiaries of life insurance policies
    - Life insurance payouts will go to those who are listed as your beneficiaries when you pass away so that gives them a portion of the money.
  - Giving your children joint ownership of property
    - By doing this, your children will be able to have full ownership after you pass away- which also secures their portion of their share of your assets.

In a perfect world, you can simply leave your assets to your newlywed spouse but as always, the options for assuring your children allows for certainty. A mutual understanding between you and your new spouse will make it easier for the future and your marriage. It is important to talk about estate planning with your family. If you or a loved one wants more information about estate planning, contact the Law Office of Inna Fershteyn at (718) 333-2395.

What is a Health Care Proxy, Living Will and Durable Power of Attorney?

As you get older, you may come to realize that you or your loved ones will eventually be unable to make major decisions on their own. Before that time comes, it is common that people consider a health care proxy, living will, or power of attorney. However, many people are unaware of the significance that these documents hold. It is important to understand the difference among these various forms depending on what you and your loved ones want.

Health Care Proxy

A health care proxy is a document that directs who will make your medical decisions for you after you are deemed to be unable to make your own decisions by a physician. Usually a family member or trusted friend is assigned this role to execute medical decisions of your best interest when you are unable to. You will be able to continue to make your own choices as long as you are still in the right state of mind. For example, if you were to fall into a coma, the health care proxy you appointed would take the steps necessary as per your wishes in this unexpected situation.

Living Will

A living will is simply a document that contains your medical wishes written for family members, friends, and health care facilities. In the situation that you will be unable to communicate your health care wishes, this document should give loved ones and others an idea of what you would have wanted. This document does not appoint anyone to oversee and speak on your behalf. It is purely a document stating your medical wishes.

Durable Power of Attorney

A durable power of attorney assigns a person (or people) to make financial decisions unrelated to making health care decisions for you. This includes factors such as paying your bills and can even include managing real estate and other assets. It is possible for the health care proxy to overlap with the power of attorney but there is a separation between the two. Power of attorney relates to financial matters while a health care proxy is exclusively medical decisions.

To summarize: a health care proxy dictates who makes your medical decisions (in both predicted and unexpected events) while a durable power of attorney dictates who will make your financial decisions for you. In addition, a living will is just your medical wishes on paper for any possible event that may arise.

A factor that people tend to forget is that an agents’ authority can be temporary as well as permanent depending on the situation. In the situation where you may be physically incapacitated for a limited amount of time, the agents’ are able to make decisions for you during the time you are unconscious. After you wake up, they lose their authority. In permanent situations such as being in a vegetative state, suffering from Alzheimer's, or otherwise, agents will be allowed to be authorized to make decisions on your behalf.

It is crucial to consider which loved ones would be the most suitable to carry these forms of authority. These kinds of documents may save trouble in the future in case anything arises. For more information on health care proxies or estate planning, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

How to Avoid Conflict Between Your Power of Attorney and Health Care Proxy

When assigning people to be your power of attorney agent or health care proxy, you are bound to choose the people who you deem to be the most fit for the role. A health care proxy is someone who you assign in advance to carry out your medical decisions when you are deemed unable to. A power of attorney agent is someone who is also assigned to make financial decisions for you in the situation that you’re unable to. In some cases, they can be the same person for both positions but in other cases, they can be different people. Although a power of attorney agent has different responsibilities from those of a health care proxy, it is not uncommon for the two to occasionally have some overlapping decisions. When this happens, the possibility that there will be conflicts between the two is not surprising. So what are some ways to prevent these conflicts?

1.) Choosing One Person For Both Roles.

This is the simplest and most popular choice when deciding on who will be responsible for both roles. It allows for just one person to make your decisions for you (both medical and financial) in your best interest without having to go through the trouble of talking- and possibly arguing with another person.

2.) Pick Two People Who Can Get Along With Each Other.

Sometimes, it’s not reasonable to choose just one person for both roles. Not everybody is good at everything. For example, you may have an ideal person in mind for being your health care proxy but that same individual may not be a good choice to represent your finances. In this case, you would have to get another person to be your power of attorney agent. Although “getting along” may seem self-explanatory, people tend to choose others who are simply suited for the role while overlooking clashing personalities. This can lead to arguments down the line so it is best to ensure that the two representatives can get along and sort out issues in a calm manner.

3.) Assign a Third Person With The Power To Settle Disputes.

If necessary, adding a third person to be a mediator of the two can decrease the number of conflicts that may arise. Additionally, this person’s name should also be included in the documents indicating what their role is. It is best to discuss with all parties involved about your wishes and what you would want to happen in the case you become incapacitated.

It is never ideal to have people bicker over what you might have wanted. Hopefully, with these tips, disagreements will not occur between your health care proxy and power of attorney agent. If you or a loved on is having trouble figuring out estate planning, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

How to Change a Living Trust?

With life’s ups and downs, it is natural for people to go through many changes throughout their lives. Some of these major changes in your life may make you want to change your living trust. To start, a living trust should not be mistaken for a will. The major difference between the two is that wills go into effect after death while living trusts are effective once they are signed and funded. Most people have revocable living trusts which allows for flexibility and change. However, if you have an irrevocable trust, it would be extremely difficult to make changes as they were made to be permanent and unmalleable.

As mentioned previously, there are many reasons that may lead you to make amends to your living trust. Some reasons may be:

Adding or changing beneficiaries
Getting married
Change in distribution of assets
Major beneficiary dies
Moving to another state

In addition, if the living trust is a shared trust, both parties are required to consent in writing for changes. Only one party is needed if it is decided to revoke the living will. Furthermore, if one spouse dies, the surviving spouse can only make amends to their own property and not the deceased spouse’s property.

The simplest way to make changes to your living trust is to fill out a trust amendment form. This form lets you keep the original trust active while making changes to it. In the situation that you have made changes in the past, you must indicate that these changes override any previous amendments or if you want to keep them in effect. When making these changes, be sure to refer back to your original trust and refer to the changes by which paragraph you are intending to change. This way, it will not cause any confusion and ensure the clarity of your new changes.

If you plan on making major revisions to your living will but you do not want to revoke your trust, a trust restatement is also possible. This redos your entire trust and allows it to be in effect with the new trust restatement document.

In severe cases, it can be more plausible for you to revoke your trust instead of making amendments to it. The reason for this is because if the changes are severe, adding amendments to an already established living trust may cause confusion. Oftentimes, people do not revoke their trusts since it means that all their assets from the trust will have to be transferred back into a new trust. Although it is not recommended and can be more expensive and troublesome to revoke a living trust, it is worth it considering that you would want your assets to fall into the right hands.

Changes in life are bound to happen and it is common that living trusts change with those life turning points. It is important that your assets go where you want them to. If you or a loved one needs assistance on creating trusts or any estate planning, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

When is the Best Time to Write a Will?

The thought of writing a will may seem daunting for people as it brings up a topic that no one wants to talk about: death. However, a will is necessary as it will help prevent conflict and trouble for loved ones in the future. It also allows you to decide where you want your assets, property, and more to go to after you have passed. Without it, your assets may go somewhere you don’t want them to.

As the COVID-19 pandemic gradually comes to an end, it was surveyed that 66% of Americans who had serious COVID cases were more likely to have a will. It was also found that 50% of young adults were now more likely to have a will now when compared to pre-pandemic times. After the pandemic, more people now than ever are thinking about their wills- but a life-threatening situation shouldn’t be the only time to think about writing a will. Any time is a good time, especially these five occasions below:

Occasions to write a will:

1. Turning 18

In the U.S, most states will allow those who are 18 and over to legally write a will for the first time. Why not get started and think ahead? It’s never too early to start writing a will. Even if you are just 18, a will is always available for alterations as life changes and progresses.

2. Change in marital status

Whether you get married, divorced, or separated, it comes with significant changes in financial and personal matters. These changes will influence the decisions you will have to write in your will. It is important to ask yourself if you want your spouse (or ex-spouse) to be part of your beneficiaries or not.

3. Change in financial circumstances

Factors such as starting your own business, getting a promotion, or even buying a house can drastically change your estate plan’s situation. Especially when starting a business or buying a house, it is crucial to consider who the succession of the business or inheritance of the house will go to.

4. Having children

As mentioned previously, it is common that those who have children will leave their property and assets to their children. However, people tend to forget that a will can also dictate guardianship for children who are minors if both parents are deceased.

5. Prolonged amount of time

As time goes on, family dynamics and relationships may change which will alter your estate plan as well. It is also possible that the planned executor of your will dies before you do. Even if you do already have a will, it is essential to update it after major life changes. Regardless, if you have been putting off writing up a will, there’s no better time than today.

For a will to be correctly done and valid after death, it is important to go to an attorney. By executing a valid will, the court will not have to probate the will- saving your loved ones time and trouble. If you or a loved one need assistance or more information on estate planning, please contact the Law Office of Inna Fershteyn at (718) 333-2395.

Responsibilities of an Executor Or Administrator

Today we will discuss the basic duties and responsibilities of an executor or an administrator.

But first, what is an executor? An executor is someone who is legally responsible for sorting out the affairs of the deceased individual. The executor must carry out their duties diligently, impartially, and honestly. An executor who fails to do so may be held personally liable by a court of law. Each state has its own requirements as to who can serve as an executor or administrator but generally, the roles are very similar. The position of executor is a paid position and each state provides its own rules for executor compensation. However, because executors are usually close family members, many executors forgo their compensation.

And what is an administrator? An administrator is someone who is appointed by the Surrogate Court to be legally responsible for the decedent’s affairs. The difference between an estate executor and an estate administrator depends on if the deceased left a will, named an executor, or if the named executor declined the appointment. Therefore, if the decedent did not leave a will (dying intestate), does not name an executor in their Will, or a listed executor declines the appointment, the court will choose the administrator of the estate. The administrator must then make sure the estate is settled according to New York intestacy laws which is what an executor does anyways.

Both the Executor and the Administrator are responsible for making sure that debts and taxes are paid and that what remains in the estate is distributed properly to the heirs of the estate, according to the wishes of the decedent. Both executors and an administrator have the same responsibilities to the state and to the deceased’s beneficiaries.

The Executor’s or Administrator’s Responsibilities Include The Following:

Determine If Probate Is Necessary

Probate is the legal procedure an estate goes through after someone passes away. This procedure is how the surrogate court will start the process of distributing the estate to the proper heirs that the decedent designates. Many assets can be transferred to beneficiaries simply by law (and avoid the probate process) such as jointly held assets or assets that have beneficiary designations (ie. life insurance policies). If all of the decedent’s property falls into this category probate may not be necessary. Additionally, the decedent may have transferred all of their property to a revocable (living) trust which similarly does not need to go through probate. If, however, the decedent owned assets outright, meaning they’re simply stated in a will, those assets do not automatically transfer upon their death. Instead, probate will be required and the executor or administrator will need to file a petition with the court to be legally assigned as the executor. It is highly advisable to work with an attorney to probate the estate.

File the Original Will With the Local Surrogate Court

The executor is responsible for locating, reading, and understanding the will to determine who will inherit the decedent’s assets. Generally, only an original will can be submitted to the surrogate court to go through probate. An experienced estate planning attorney can assist with this duty.

Notify Financial Institutions & Government Agencies of the Decedent’s Death

The executor should notify the decedent’s banks, credit card companies, and government agencies like the Social Security Administration of the decedent’s death.

Set up a Bank Account for Incoming Funds and Pay Any Ongoing Bills

The executor has to set up an estate account with a bank so the decedent’s assets can be transferred to it. The account will be used for the ultimate distribution of the assets to any creditors and heirs. The executor should also use this account to pay the decedent’s mortgages, utilities, and other bills that still need to be paid throughout the probate process.

Maintain the Property Until It Can Be Distributed or Sold

The executor has to find, protect and preserve all of the decedent’s assets until they can be distributed. This includes any real property (houses, cars, boats, etc...) owned by the decedent until it is distributed to heirs or sold.

Pay the Estate’s Debts and Taxes

The executor is obligated to pay the decedent’s debts if there are sufficient assets in the estate to cover them. The executor must also file income tax returns starting from January 1st of the current year until the date of the decedent’s death. If the estate is large enough, a Federal estate tax return will need to be filed. Also, if the decedent’s estate exceeds the estate tax exemption in the year of the decedent’s death, state and federal estate taxes may have to be paid.

Distribute Assets

The most common responsibility of the executor or administrator is that they must distribute the decedent’s assets pursuant to the will’s directives. This is after a surrogate court judge has validated the will. If there is no will, state intestacy laws apply and the administrator will carry out almost all of the same responsibilities as an executor.

File an Inventory of the Estate’s Assets With the Court

Once the executor knows all the assets in the estate and distributes them pursuant to the will the executor must file an inventory of the assets with the Surrogate Court.

How can an estate lawyer help

Since each estate varies in size and complexity, an executor’s job may be fairly simple or very challenging to carry out. Responsibilities may very well go beyond the 10 common duties in this list. Consulting with an experienced and knowledgeable estate planning attorney is certainly recommended.

For further estate planning assistance, please contact the Law Office of Inna Fershteyn at (718) 333-2395 to receive the most highly qualified legal advice.

Handling Bank Account Funds in an Estate

How you handle bank accounts, like any other asset owned by a deceased individual, depends on how they were owned. Here are a few scenarios in which funds are handled and how one may go about handling them under certain circumstances.

Solely Owned Bank Accounts

If the deceased individual owned the account in his or her own name and did not identify a payable-on-death beneficiary, the account will certainly be subject to probate. Probate is the legal process that takes place after the death of an individual to make sure that their assets are properly collected and distributed to the appropriate beneficiaries by the appointed executor. If the deceased left behind an estate plan, identifying their beneficiaries is as simple as reading the will; if not, their assets will be distributed according to New York’s intestate succession laws. However, if the total amount of probate assets is low enough to count as a "small estate" under state law, the rightful heirs will be allowed to claim the money using either streamlined probate processes or an affidavit.

Accounts with a Payable-on-death Beneficiary

These are the straightforward ones: because the money is still not part of the deceased person's probate estate, you do not have any control over it as executor.

The money can be claimed by the beneficiary specified by the deceased individual by visiting the bank with a death certificate and identification. The paperwork in which the account owner chose the POD recipient should be kept with the bank.

Jointly Owned Accounts

In most situations, if a deceased individual has a joint account with another individual, the surviving co-owner becomes the account's owner immediately. To be transferred to a survivor, the account does not need to go through probate.

The Right of Survivorship

There are, however, exceptions to this general norm. The "right of survivorship" applies to most accounts that are held in the names of two individuals, but not all. In other words, if one of the co-owners dies, the money immediately passes to the surviving co-owner. (It typically works in the same manner with retirement funds.)

Sometimes it may be obvious that the account has a right of survivorship. Suppose the account is named "Lisa Johnson and William Johnson, JTWROS." (Joint tenants with right of survivorship is the acronym.)

It's likely still a joint tenancy account if the account registration document at the bank only includes two names without mentioning joint tenancy or right of survivorship. In Texas, for example, in order to establish a joint tenancy account, the account owners must sign a separate contract in addition to the bank's registration card.

Disputes About What The Deceased Intended

When two people—say, a married couple—open a joint account, no one will argue that when one of them dies, the assets in the account go to the survivor. When an elderly person adds someone else's name to an existing bank account, the situation may be different.

This is frequently done to avoid probate in the event of the original owner's death. However, the second name is often added only for the sake of convenience—that is, so that the other person may write checks on the account and assist the original owner. Alternatively, the arrangement is meant to provide simple access to the assets to the second person following the original owner's death, so that the funds may be utilized for the burial or other expenditures.

When the original account owner dies, the person whose name was added to the account legally becomes the outright owner of the money. Unless it’s in writing, any previous agreement about how the money should be spent is unenforceable. The money belongs to the new owner, who can spend it on anything he or she wants. If family members are certain that the deceased individual desired a different outcome, they will have a hard time getting the money back from the surviving joint account owner if they go to court.

Bank Accounts Held In Trusts

Many people put their significant assets in a living trust to avoid having to go through probate later. You'll be able to tell if the deceased individual had a bank account in trust based on the account statements, which will reveal who the account was owned by for example, "Lisa Johnson, trustee of the Lisa Johnson Revocable Living Trust dated September 9, 2003.”. The account, like other trust assets, is managed by the successor trustee, who takes over once the original trustee passes away. The funds will be transferred to whoever inherits them under the provisions of the trust deed by the successor trustee.

The Law Office of Inna Fershteyn can assist you in handling bank account funds in an estate. Please contact us at (718) 333-2395 for an experienced and diligent estate attorney who is familiar with the probate and trusts process.

Passing Assets to Grandchildren Through a Generation–Skipping Trust

While there are numerous ways in which one can pass assets to family members or following generations, a generation-skipping trust allows a beneficiary—or otherwise called a trustor or grantor—the ability to pass all assets onto the next generation by "skipping" the consecutive generation tax–free. This form of trust is most often utilized for relatives who are at least 37.5 years younger than you. They often include a beneficiary such as a friend, grand–child, or niece/nephew (excluding a spouse or ex-spouse).

What is a Generation-Skipping Trust?

A generation-skipping trust is an established trust that names a beneficiary who has to be at least 37.5 years younger than the settlor. A generation-skipping trust can be established by a settlor, as part of a complete estate plan to reduce tax obligation.

A settlor, for example, might leave an inheritance to a grandchild without ever transferring ownership of the assets to the child's parents. The assets flow tax–free to the recipient upon an individual’s death from the consecutive generation.

How a Generation-Skipping Trust Works

Generation-skipping trust laws provide precise requirements for who can be designated as the "skip person," according to the United States Code. According to these laws, the skip person, or beneficiary, must be “a natural person allocated to a generation 2 or more generations below the transferor's generation assignment.”

Three Things to Consider when Creating a Generation-Skipping Trust

First, the federal GST exemption level was raised to $11.4 million in 2019 and $11.58 million in 2020, after being adjusted for inflation. This implies that you are eligible for a lifelong generation-skipping tax exemption on property transfers up to that amount. There are twelve states who additionally have their own inheritance tax, which applies to smaller estates in some cases. When someone leaves an estate to their child, who then leaves the estate to their offspring, the estate taxes are levied twice. One of these transactions and estate tax assessments is avoided by using a generation-skipping trust.
As long as the original assets stay in the trust for the deceased person, there is no restriction prohibiting the following generation from obtaining earnings on assets. The trust can also be set up for them to obtain a voice in future beneficiaries' rights and interests. When your children pass away, the assets will transfer to the beneficiaries.
It is not necessary for the recipient to be blood related. A generation-skipping trust solely requires that the trust is created for a beneficiary who is at least 37 1/2 years younger than the deceased individual.

Generation-Skipping Trust and Taxes

“Congress created the generation-skipping transfer (GST) tax and connected all three taxes [estate, gift, and generation-skipping transfer taxes] into a single estate and gift tax,” according to the Tax Policy Center, with the objective of eliminating the estate tax loophole.

Accordingly, by moving assets to the trust that falls under the exemption amount, the trust can be established to take advantage of the GST tax exemption. If the assets appreciate in value, the proceeds can be distributed to the trust's beneficiaries. Furthermore, because the trust is unchangeable, your estate will be free from paying GST even if the value of the assets exceeds the exemption limit. This is also true for any asset appreciation because all profits are transferred directly to beneficiaries. This means you will not have to pay the generation-skipping transfer tax if the value of the trust's assets totals to an amount exceeding the exemption maximum.

The estate tax exemption was increased through 2026 by the Tax Cuts and Jobs Act, which was passed into law in 2017. Because of the large barrier, most people will not be subject to the generation-skipping transfer tax. However, beneficiaries who receive assets in excess of the $11.58 million inflation-indexed exemption would be subject to a 40% top tax rate on the taxable amount.

Gift Tax

The individual gift tax for 2019 was $11.4 million. As a result, you and your spouse will be able to exchange $11.4 million over the course of your lives. Through 2025, the yearly lifetime gift tax exemption has been raised by the Tax Cuts and Jobs Act of 2017. The gift tax increased to $11.58 million per person in 2020.

Determining Whether a Generation-Skipping Trust is Right For You

Since a generation-skipping trust is a complex legal structure, it is a good idea to think about it as soon as possible—preferably when you are starting to plan your retirement.

A generation-skipping trust is an excellent concept for capital preservation if you have a significant estate that is likely to be affected by the federal estate tax, and where, barring any catastrophic circumstances, your children will also have to pay the estate tax. It can also prove to be a sufficient resource in preserving your personal assets to those you wish to desire. Nonetheless, you must keep in mind that trusts are irreversible.

If you are in need of a highly qualified and experienced attorney for advice on how to build a trust, please contact the Law Office of Inna Fershteyn at (718) 333-2395 to have all of your authorization questions answered.