by: Mark A. Krohn & Gary M. Schuster
Host: Hello and welcome to Upfront and Legal. On this edition, Mark Krohn in joined by Gary Schuster in a discussion about estate planning. As these attorneys for Jacobowitz and Gubits, Walden and Monticello, point out, that most people don't think they are wealthy enough to have an estate. There are good reasons for everyone to consider the consequences of not planning ahead. To open the discussion, here is Mark Krohn.
MAK: We are talking about today what it takes to settle an estate in New York. First of all, I think, it would be helpful to understand what an estate is; basically, someone's estate is defined by a person's will, if there is a will, and also how property is titled in the State of New York. For example, most insurance policies name a beneficiary and, therefore, the insurance proceeds upon death go automatically to a beneficiary outside of one's estate. So, it is not includable in an estate. New York State law also defines what an estate is and also defines what exempt property is. Exempt property would include the family bible, family pets, tools, that sort of thing. Now, once you define what an estate is, people have to know what to do as far as administrating the estate. So, the first step is usually taking a look at the will, if there is a will. Usually a will, will define who an executor is and whether a bond is required. If you need a bond, you go ahead and contact an insurance company and obtain one. Sometimes a court will require bonds if the will doesn't say anything about that.
GMS: What is a bond for?
MAK: A bond is to usually insure that the fiduciary, an executor or an administrator, actually carries out his or her duties. So that if a mistake is made, the executor or administrator would be insured in order to make up any monetary loss as a result of a mistake.
GMS: So, it's kind of an insurance policy for the executor.
MAK: That's exactly what it is, Gary. Gary Schuster, my co-partner here. Basically, you hit it right on the nail.
GMS: Let me ask you - when you said, how property is titled. Are you talking about the title to a house, the title to a car, sometimes it's got one name on it, sometimes it has two names on it; so, that makes a difference when we are trying to figure out what's in the estate.
MAK: Yes. Let's go back to how property is basically titled and talk about jointly held property. Jointly held property will not become part of ones estate, because it automatically goes to the survivor. So, if you were to hold property, your house, say, with your spouse and then one of you dies, the survivor would get the house automatically and it would not become part of the estate for purposes of probate or administration.
GMS: You could also do that with a bank account, right? With a checking account, savings account?
MAK: Many times you will see that. People will put a banking account or checking account of some type in joint names so that one or more people, or two or more people, can people draw the funds out at any time, and that is something else that will pass automatically to the survivor without the need of having to probate that asset. So, you see sometimes in a smaller estate proceeding you don't see any assets whatsoever that you can really probate so there is no need to go to court, no need to apply for a probate proceeding or an administration proceeding. In an administration proceeding, it's a proceeding that takes place without a will. So, if everything is held jointly, you really don't have the necessity of probating or administrating an estate and you really end up having to do nothing, if all this happens automatically.
GMS: So, if someone is interested in fast access to money, a jointly held bank account might be a good way for them to go?
MAK: Well, it might be. The other side of the story and people argue that for tax purposes it is not so good of a way to go, because what happens is owning property jointly will bunch up the property in the surviving party's estate so that when he or she dies you have a lot more property now includable for tax purposes. You lose some tax benefits, such as the Unified Credit, which is currently 2 million dollars, you can give away 2 million dollars, which is nice to know, without the necessity of paying any taxes on it. So, if you hold
everything in joint names, though, you may lose that benefit of utilizing the Unified Credit. It depends upon who give it to. If you hold it with your spouse, then the tax law says, for example that the marital deduction, the unlimited marital deduction, which came into play back when President Regan came to office, takes over and again you lose the benefit of the applicable credit now - used to be called the Unified Credit and now it is called the Applicable Credit. So, if you do have property though that eventually does need to be probated in court or through an administration proceeding, you have to have an attorney prepare a petition or either probate or administration, which has to be submitted to the Surrogate's Court in the area which the decedent had resided. And, in this case, Orange County, where we all reside. So, that petition is usually prepared by attorneys. It names the person usually appointed, it would be the person appointed in the will, an executor is usually appointed in the will and that is usually the surviving spouse or child or family member of some type. And if there is no executor named in the will, or if there is simply no will, it's an administration proceeding, for example, without a will. Then, anybody in the family can serve as an executor or administrator, as well as a creditor. So, that is one of the things we look at as we are going through an estate just to determine, first of all, who should be the petition in connection with a will or, again, if there is no will.
GMS: Now, if there is no will and there are perhaps several children; might there be a fight among the children if somebody wants to be the administrator?
MAK: Oh, yeah, it happens all the time. Children are concerned with taking over. There is a lot of emotions sometimes in connection with mom or dad's estate and they want to make sure that what they know about mother or father is done the way mom and dad wanted
them to do it. So, sometimes you do get into these controversies where someone would rather serve as an executor or an administrator versus someone else. And that does happen. And it is understandable. There is a lot of concern for the parent's estate at that point.
GMS: A better way to avoid that fight would be to write a will and to name an executor.
MAK: That's absolutely, true. That is advisable, but even if that's the case. Everybody has heard the phrase "everybody is due their day in court". So, once the will is submitted to the court for review, all the interested parties, all the family members have an opportunity to contest a named executor. Even though, the decedent in the will. Another family member could come and argue that he or she should not be the executor of the will because of some problem and then the judge has to decide ultimately who is appointed. Now, in connection with the administration of the estate, you have to also be concerned with marshaling assets and understanding the extent of assets that exist.
Again, we talked a few minutes ago about jointly held assets. We are not really concerned with jointly held assets in this particular discussion, because those assets, and once again, they're going to pass outside the estate automatically to the survivor. The kinds of assets, though, I'm talking about and the kinds of assets we should be concerned about when we are administrating and estate they're held in the sole name of the decedent, individually. It might be securities, for example stocks and bonds, tools that are in excess of $1,000 in value, and other types of assets such as, a secondary home. That kind of thing. So, with regard to assets, solely owned by the decedent, we want to take a look at those and try to get a value for those assets for both tax purposes as well as for probate purposes because, if there is no will, as a matter of fact the court will charge a fee up to a maximum of $1,000, basically, based upon the value of property. So, one of the things that we ask our clients to do when we are talking to them about selling an estate is to go through the papers that they can find in the house and ascertain what assets exist. Then after we know what assets exist, we are very concerned about insurance. We want to make sure that the insurance policies are current on any asset that requires insurance, such as an automobile, a house, that sort of thing. We don't want to see insurance lapse for any period of time in which are administrating an estate.
GMS: Talking about the property a person owns - I know it's important to determine the value of that property as of the date death.
MAK: That's right. The law in the state, for tax purposes, the decedent's property is valued on the day the decedent dies. And that value is usually established by appraisers who can come in and take comparables in connection with a home, or piece of real estate, or if it's a car that can usually be easily determined by looking up the NADA (National Automobile Dealers Association) value on the day of death for that particular automobile. If it's a stock and bond that's traded on the public market, we can usually find the value by looking at the market for that day and; so, all those values then are added together to determine the size of the estate. If the estate is less than 2 million dollars, for federal purposes, you are not going to have an estate tax that you have to pay at least under current law. That number is going to change. It is going to go up to 3.9 million in a few year, in 2009 and then in 2010 the estate is going to go away for one year. Then after
2010, unless Congress acts, it is going to go back to 1 million dollars, which is the way it was back in 2001. So, that is where we are today, though, we are at a 2 million dollar exemption level. So, unless you have an estate in excess of 2 million dollars, you are not going to pay estate tax for federal purposes. One must caution though, that for New York State purposes, the exemption is only 1 million dollars. So, you could easily end up paying a New York State estate tax equal to $99,500 and yet pay zero of estate tax for federal purposes if you have an estate equal to exactly 2 million dollars.
GMS: Well, listening to all that, it seems that everybody should have a will and also an analysis of their property to make sure that their property goes where they want it to go and that they won't have to pay an exorbitant amount of taxes.
Why don't we talk about that next time?
MAK: That sound great.,
Host: Mark Krohn will return after this commercial break. [silence]
Host: That's all the time we have for this presentation. If you have any questions you would like answered about estate planning, you can call either Mark Krohn direct at 845-7782121. Just tell the operator you listened to Upfront and Legal and you have a question for Mark. That's 845-778-2121.
