TRUSTS & ESTATES (ADMIN - ESTATE)

Trusts & Estates (Administration – Estate)

Experience with in general, and depending upon the jurisdiction in which the owner of an estate resided at the time of death, many different components, considerations and mechanisms involved in estate administration and planning, ranging from the simple to the complex, including but not limited to assets located in foreign jurisdictions, blended family issues (in which either or both partners have children from prior partners, who are not biologically related to the current partner), business succession planning, charitable donations, charitable gift annuity, charitable lead trust (to provide an income stream to a charity for a term of years, with the remainder of the trust going to the children of the marriage, if any, without having to pay any estate or gift tax), charitable remainder trust (to provide an immediate income tax deduction, a lifetime income stream and a waiver of capital gains taxes owed on contributed property), credit shelter trust (CST) by a married couple during their lifetimes (so that the donations from each spouse up to an aggregate for both of $2,000,000 – the Federal estate tax exemption per person is $1,000,000, so each spouse may contribute up to $1,000,000 – are divided between two new trusts of up to $1,000,000 each upon the death of the first spouse, one such trust for the benefit of and controlled by the surviving spouse, who receives any income stream during their lifetime with no estate tax – since the other spouse's donations of up to $1,000,000 to the CST are considered non-taxable transfers between spouses – and one such trust for the benefit of the children, controlled by a trustee), Crummey trust (under which a person may make a gift of up to $15,000 per year to the trust to avoid gift tax liability, as long as the gift is for the unlimited and present usage of the interest being conveyed – in other words, although the trust beneficiary may withdraw the gift amount from the trust at any time, the expectation is that the beneficiary will leave the entire gift in the trust for years, allowing the interest on the gift to compound and accrue), donor advised fund (which allows you to maximize income tax savings on your regular monthly or weekly contributions to churches or charities), dynasty trusts (long-term trusts – designed to survive for 21 years after the death of the last person for whom the trust was originally created – established for the basic purpose of transferring wealth from generation to generation while avoiding transfer taxes such as estate tax and gift tax), education trusts, elder law considerations, family LLC or family partnership (for the purpose of making donations to a trust dedicated to a particular purpose, such as eventually providing funds to pay for the education of the children, and then upon the death of the donor to such trust for the education of the children, the decedent's estate should hire an appraiser to determine the lack of marketability of the decedent's share of the family LLC or family partnership, so that the appraiser's determination can be used as evidence to reduce the value of the decedent's estate, resulting in reduced estate tax), grantor retained annuity trust (GRAT), generation-skipping trust (designed to allow the estate owner to transfer assets tax-free to their your grandchildren), grantor trust, irrevocable trust, life insurance policy trust (in which a grantor's life insurance policy is transferred to a trust during the grantor's lifetime, and the grantor donates amounts to such trust of up to the annual federal gift tax exemption amount for the payment of the life insurance premiums each year, and once the grantor dies, the life insurance proceeds are distributed to the beneficiaries of the trust tax free, and the decedent's estate avoids estate taxes, because the value of the life insurance policy shall not be included in the value of the grantor's total estate), living (or "inter vivos") trust (either irrevocable or revocable), living will, minor child trust (may preserve all the trust assets until a specified date, or may allow a minor child who may have earned – as with a child actor – inherited or won money to have some limited access to the funds with the trustee's consent, until the child reaches adulthood), prenuptial agreements, private foundation (to control the use of your gifts by placing restrictions on how your gifts are used by particular charities, for particular purposes), post-nuptial agreements, probate, powers of attorney, qualified terminable interest property (QTIP) marital trust (designed to provide for the surviving spouse after the estate owner's death, but preserving the actual estate assets for distribution at some future time after the death of the surviving spouse to some specified beneficiaries), qualified personal residence trust (QPRT), special needs trust (for those with certain "special needs" as may be defined in relevant statutes), spendthrift trust (designed to protect the assets of a beneficiary who is not able to properly manage his or her own affairs), testamentary trust (a trust created through a will), trust decanting (under New York Consolidated Laws, Estates, Powers and Trusts Law – EPT Section 10-6.6, "trust decanting" describes a situation in which an authorized trustee or some beneficiaries of an existing trust may be unhappy with such trust, for example if such trust contains obsolete provisions, and so under the authority of an authorized trustee with unlimited discretion over the principal in any trust or even an authorized trustee with just the power to invade the trust principal but without unlimited discretion to transfer the principal in an existing trust to another new trust, either such trustee may create a new trust to replace the existing trust and then transfer the assets of the existing trust without obtaining the consent of the beneficiaries of the existing trust – even to the extent of excluding some beneficiaries of the existing trust from the new trust – and without obtaining a court order, but if such trustee has only some form of limited discretion, then the trustee of the existing trust cannot decant the existing trust unless all the beneficiaries of the existing trust consent), various complex tax planning issues, and wills (the most common method for advanced planning of distribution assets of a potential estate).

If the decedent died "intestate" (meaning without having a valid will in the jurisdiction where the decedent resided at the time of death), the estate is then distributed by the jurisdiction where the decedent resided at the time of death, pursuant to the inheritance laws of such jurisdiction (which in New York are found in the New York Consolidated Laws, Estates, Powers and Trusts Law – EPT), according to the formula specified in the statute (generally as follows: if the decedent had a spouse but no children, then the entire estate passes to such spouse; if there is a spouse and children, there is first some fixed dollar amount – $50,000 in New York – that goes to the surviving spouse, along with half of the remaining estate, and the other half of the remaining estate is divided equally among the children; if there are children but no surviving spouse, then the entire estate is divided equally among the children; and there are generally other provisions if there are grandchildren or other immediate blood relatives), but certain family members of the decedent have the right to commence an administration hearing to claim the assets before the jurisdiction commences any such intestate distribution procedure.

In the event of intestacy, under the New York Surrogate's Court Procedure Act – SCPA Section 1001, the Surrogate's Court is responsible for appointing an administrator (generally, a potential distributee of any assets of the intestate decedent's estate who had the closest blood relationship to the intestate decedent), by issuing letters of administration, and pursuant to a specified order of priority for such appointment.

In the event that the intestate decedent died without a surviving spouse or children, and no further blood relatives of the intestate decedent can be readily-identified, then New York allows for a kinship hearing, in which anyone who may have a colorable claim to being a remote blood relative of the intestate decedent may come forward to attempt to prove whatever relationship they may claim to have had to the intestate decedent and why they should inherit some or all of the intestate decedent's estate, providing such claimant can prove that they have some officially-documented relation to the intestate decedent, and that there are no other remote blood relatives who may have a closer relationship to the intestate decedent, and that such claimant would not need to share the intestate decedent's estate with any other alleged blood relatives of equal relation to the intestate decedent.

If the decedent died "testate" (meaning with a will that is valid in the jurisdiction where the decedent resided at the time of death), and assuming that such will is above a certain statutorily-specified threshold value, and specifies particular a particular executor, and specifies particular beneficiaries for particular estate assets, and the decedent died with all such assets in the sole name of the decedent, then the decedent's estate will have to go through probate.

Attempting estate administration through probate can be a very lengthy and unsatisfactory process (depending on the size of the estate), and may generally consist of the following phases: filing a petition with the probate court of the jurisdiction in which the decedent resided at the time of death (in New York, this would be the New York Surrogate's Court, pursuant in general to the New York Consolidated Laws, Estates, Powers and Trusts Law – EPT, and specifically to the Surrogate's Court Procedure Act – SCPA); giving notice to heirs under the will or to any assumed statutory heirs (if the deceased died intestate – meaning without will valid in the jurisdiction where the deceased resided at the time of death); filing a petition with the probate court to appoint an executor (if there was a valid will, and assuming the will did not specify a particular individual as the decedent's chosen executor) or administrator (in the event of no valid will); the executor or administrator must then inventory all estate assets and have them appraised; the executor or administrator must then pay all valid debt's that had been incurred by the decedent during life, and remained unpaid at death; the executor or administrator must then arrange the sale of any residual estate assets (meaning any estate assets that the decedent had not bequeathed to specified beneficiaries); the executor or administrator must then pay any applicable estate taxes out of any cash assets in the estate; the executor or administrator must then distribute those estate assets that the decedent had bequeathed to specific beneficiaries, and distribute any remaining cash from the estate to any residual beneficiaries (meaning those beneficiaries not named specifically in the decedent's will, but who may stand to inherit some portion of the decedent's estate through operation of law); and finally, the executor or administrator must obtain a final order from the appropriate probate court, declaring the estate settled (assuming that all beneficiaries have agreed with the executor's or administrator's distribution of estate assets).

Assuming there is no "will contest" litigation involved, an uncontested probate process may take at least 10 to 20 months.

Some estate assets are "non-probate assets", and so are not subject to probate, because they pass to certain successors in interest automatically by operation of law, such as property in which the decedent held title as “joint tenants with right of survivorship” (meaning that the surviving co-owner automatically obtains the property at the death of the decedent), or certain retirement accounts such as an IRA and 401(k) accounts that have designated beneficiaries, or life insurance policies which have designated beneficiaries, or bank accounts with designations such as “pay on death to....” (POD) or “held in trust for....”, or property held by a living trust (legal title to which passes automatically to the successor trustees upon the decedent's death).

A successor trustee for a trust has many obligations both to the trust and to the beneficiaries, such as in general to account to all beneficiaries equally, avoid all conflicts of interest and self-dealing situations, deal impartially with all beneficiaries equally, delegate any investment decisions to competent entities managers (if the successor trustee is not familiar with investing or available investments that may be beneficial to the trust), file required tax returns and pay any tax due out of the trust assets, keep accurate and current records regarding all aspects of the trust, not commingle trust assets with those of the trustee or anyone, pay all trust expenses promptly, preserve the trust assets and the trust structure, distribute income pursuant to any instructions in the trust, show loyalty to all trust beneficiaries equally, take all prudent actions to make the trust property productive, and update all beneficiaries equally regarding the financial status of the trust and any trust issues that may affect the value of the trust.

If any beneficiaries (those who may have "standing" to contest the will – meaning that they have an apparently-valid interest in the decedent's estate) may disagree with the executor's or administrator's distribution of the estate assets, or may disagree with the actions of the executor or administrator, or may wish to contest the mental capacity of the decedent at the time the will was created, or may have some other grievance, they will challenge such distribution through a "will contest", perhaps commencing litigation by requesting an injunction to halt the distribution until the "will contest" litigation is concluded, which may take years.

Executors are reimbursed for reasonable expenses and may also be eligible for statutorily-authorized fees, and are held to the highest standards of prudence when making decisions about the estate.

Probate expenses (such as accounting fees, appraisal costs, attorneys’ fees, court fees, executors’ fees, surety bonds and the like) may range around 6% of the estate's value.

A general recommendation for managing estate administration may be to establish a clearly-drafted irrevocable living trust (which then cannot be modified without the consent of all beneficiaries, and where the instructions for the distribution of the estate assets are simple enough for the successor trustee to accomplish easily), created as late in the life of the estate owner as reasonably possible, clearly superseding any existing will.

Last updated 201008_1827