Posts by EMM

When A Marriage Fails

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When A Marriage Fails

Sad—but true:  about forty percent of first marriages in the United States end in divorce. The rate for second marriages is higher still. Many women and men who have gone through the divorce process know first-hand that it can be very distressing, if not downright agonizing, because it requires the resolution of so many aspects of the marriage itself and the lives of the parties—including their children.

The termination of a marriage generally includes the “equitable distribution” of marital assets including houses, businesses, the value of professional licenses, retirement accounts, and the like; the amount and duration of spousal support (what used to be known as “alimony”); the amount and duration of child support, including, where needed, the payment of child-care costs; the payment of children’s medical, dental (including possible orthodontia) costs, and, where necessary, psychological care.  Additionally, crucial issues, such as child custody and the rights of the visiting parent (and, sometimes, grandparents) must be resolved; the changing of the names of beneficiaries on bank accounts, retirement funds, and the like; the need to consider obtaining or maintaining life insurance protection to provide funds to care for children in the event of the death of one or both of the bread-winners; the creation of new estate plans including wills, trusts, health care proxies, and powers of attorney.  All of these issues, and more, must be resolved at a time when, in many cases, anger and animosity abounds between the spouses, tending to inhibit cooperation.

Our experience has taught us that the difficult process of divorce can be made easier by educating our clients on their legal rights, and what they can or should do, to protect themselves prior to the commencement of a formal divorce action.  The aphorism “knowledge is power” surely applies to divorces.  It starts with knowledge of the law, the documents that should be obtained and carefully scrutinized, the “skeletons” in your spouse’s closet (and yours?), the tailored strategy that should be employed, and many more, are all crucial to the process. Thoughtful consideration must be given to every aspect of this life-altering decision.

“What about an ‘uncontested’ divorce?” “Doesn’t that make the whole process easy?” a client recently asked. Well, while it is true that a purely uncontested divorce, if obtainable, will save time, money, and emotional drain, the problem is that many couples who believe that they have resolved ALL issues without legal counsel, suddenly come to the realization that they are “giving too much away” or “won’t be able see the kids as often as they’d like”, or “must contribute to a child’s college education when they thought the other party was going to handle it” and on and on—and on.

What is clear is that experienced matrimonial counsel should be consulted prior to taking any steps in this process.  Feel free to contact all us if you have any questions in this area.

QUESTION:  I am a divorced mother with a ten year-old child.  I just obtained a child support award from a judge.  Will I, as the mother and custodial parent, be “stuck” receiving the same amount of child support until my child reaches the age of legal emancipation—in this case, for eleven more years, even if my ex-husband makes double the money in the future?

ANSWER:  First, please understand the difference between a custodial parent (the parent with whom the child is living) and a non-custodial parent (the parent with whom the child is not living.) A non-custodial parent pays child support to the custodial parent.  A non-custodial parent’s basic child support obligation is calculated in accordance with the New York State Child Support Standards Act. The Court must apply certain pre-set child support percentages (17% of the non-custodial parent’s income for one child; 25% for two children; 29% for three or more children), unless a judge finds that applying the pre-set percentages would be “unjust” or “inappropriate.”

In addition to requiring payment of the basic child support obligation, the Court must also apportion the cost of the children’s health insurance, un-reimbursed medical expenses, and child care expenses, between the parents, in the same percentages used in the child support calculation.  The Court may also award educational expenses in child support proceedings, including contributions toward the cost of private school, enriched education, and college expenses for the children.  Once reduced to an order of the Court, such amounts cannot be changed without a “petition to the Court to modify” the child support order, either upward or downward, as the case may be.

Effective October 13, 2010, the standard by which a parent can petition the court for a modification of a prior child support order has significantly changed from prior standards. Unless the parties have specifically “opted out” (given up the right) of the ability to modify a prior child support order under the following circumstances in a validly executed settlement agreement, a parent can now move to modify an order of child support any time after either three years have passed since the order was entered, last modified or adjusted, or there has been a change in either party’s gross income by fifteen percent or more since the order was entered, last modified or adjusted.  Additionally, either party can now move for a modification any time there has been a “substantial change in circumstances.”  As amended, the law now opens the door for many more parents to move to increase the amount of child support being paid upon word that the other parent is making significantly more money than at the time of the original order.  In the alternative, the parent who is earning significantly less than at the time of the original order may move to decrease the child support obligation.

However, if a Court finds that a party voluntarily decreased his or her income (i.e., by quitting a job or passing on an offered job, etc.), such party will ordinarily be unsuccessful in requesting a decrease of his or her child support obligations.  Intentional attempts to avoid properly supporting a child will never be taken lightly by the Court.

Please feel free to contact us with any questions relating to this, or any, topic in the matrimonial field.

 

Reverse Mortgages: A Worthwhile Idea Especially In Today’s Economy

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Reverse Mortgages: A Worthwhile Idea Especially In Today’s Economy

A number of our older clients (as well as their children) have asked us recently whether a Reverse Mortgage might help them with cash flow in these difficult times. Below is a brief review of the subject.

These are indeed tough economic times, particularly for seniors who need additional cash flow to supplement their Social Security payments and Pensions. A senior who saw his or her home as a “nest egg” in retirement, may now view it as a financial albatross. With the costs of fuel, taxes, insurance, lawn care, snow removal, home maintenance and, in many situations, the payment of the mortgage itself, home ownership may feel more like a curse than a blessing. The real estate market is struggling and seniors cannot afford to sell their homes until the market improves. What can one do?

A possible answer for homeowners in this situation is a Reverse Mortgage. A Reverse Mortgage was once considered an expensive way of extracting cash from your home and fell largely out-of-favor. This trend appears to be changing. Many credit unions, for example, are cutting their closing costs thereby helping homeowners, even some affluent ones, who want or need to generate additional retirement income.

In a nutshell, Reverse Mortgages allow people 62 years of age and older to convert their home equity into cash. Instead of the homeowner writing a check to the bank each month, the bank actually pays the homeowner, who may elect to receive the proceeds as a lump sum or line of credit. With new reduced fees offered by some companies, homeowners may be able to save many thousands of dollars on closing costs.

With a Reverse Mortgage:

  • the homeowner, not the lender, retains title to the home;
  • the proceeds are tax-free;
  • the homeowner is not required to make any monthly mortgage payments;
  • the homeowner’s retirement income is increased; and,
  • the homeowner can use the money to pay increasing health-care costs, pay for long-term care, make home improvements and, of course, enjoy the additional income derived from the Reverse Mortgage.

Qualifying for a Reverse Mortgage

  • you must be the titleholder of the property;
  • all borrowers must be 62 years of age or older;
  • any prior mortgage balance must be paid off at the time of closing, but you can use the money from your reverse mortgage to pay it;
  • your home must be a single-family home, a multi-family home with 2 – 4 units (one of which units must be your primary residence), or a condominium.*
  • no income or credit qualifications are required; and,
  • the homeowner must go through mandatory HUD-approved counseling.

Reverse Mortgages are more and more recognized by active retirees as a viable option to supplement their retirement income and allow them to remain in their home. Talk to us about them. We’ll give you candid advice and help you determine whether you are a candidate for a Reverse Mortgage.

*Co-ops do not qualify for Reverse Mortgages

 

The Importance of Reviewing Your Beneficiary Designations

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The Importance of Reviewing Your Beneficiary Designations

Question:  I am fifty-eight years-old and have a brother nine years my senior.  My father, who died recently, executed a Will in which he left all of his assets equally to my brother and me.  Before I was born, my father had enrolled in his employer’s retirement plan and designated my brother (then his only child) as the sole beneficiary of that plan.  Here’s my problem: my father never changed the beneficiary designation of his retirement plan to add me.  My brother told me that he will not share the benefits of my father’s retirement plan with me.  That’s terribly unfair because my father, in his Will, clearly desired that my brother and I share his entire estate equally.  Can I can do anything to obtain half of my father’s retirement monies? Very upset, Sarah T.

Answer:  Sarah, although your father’s Will makes it clear that he wanted you and your brother to share equally in his estate, his failure to change the beneficiary designation in his retirement plan to include you, now prevents you from obtaining any of the proceeds from that plan.  Sadly, most people do not understand that the person or persons named as beneficiaries of various assets, including retirement accounts (such as IRAs and 401Ks), life insurance policies, trusts, annuities, jointly-held real property, certain types of bank accounts, and many other similar assets, receive those monies outside of, and regardless of, the language of the Will.  The fact that your father’s Will provides for an even split of his assets between you and your brother has no effect on his beneficiary designations.  So, Sarah, we’re sorry to say that the only way you can obtain your rightful share of your father’s retirement plan is to work it out with your brother—and that seems unlikely under the circumstances.

We urge our clients to check their beneficiary designations on a regular basis. Lifetime changes such as marriage, birth, death, divorce, new financial circumstances, and other factors must be taken into account when you consider, or reconsider, your estate plan.  And you should never create, or review, your estate plan without reviewing your beneficiary designations. We strongly recommend such a review every two to three years.

We are pleased to review estate documents and beneficiary designations as a courtesy to clients  Feel free to call to make an appointment.

You should review your estate documents including your beneficiary designations every three years or whenever a significant change occurs in your life circumstances.

When A Loved One Dies

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When A Loved One Dies

In 1789, Benjamin Franklin famously wrote “in this world nothing can be said to be certain, except death and taxes.” In this LawLetter, we will deal with the inevitable loss of a loved one, highlighting the legal and practical matters that follow such an event. We will defer the subject of taxes to a future article.

Some of the many steps, procedures, and issues most commonly faced in the course of this process are outlined below. Feel free to contact us to obtain additional information regarding any specific topic.

Promptly after the loss of a loved one, the following steps, at a minimum, should be taken:

  • Notify the Social Security Administration to stop monthly payments;
  • Notify credit card companies in order to prevent potential fraudulent activity and/or to terminate monthly fees that may apply to the account, etc.;
  • Collect or redirect the decedent’s mail to determine what bills and debts exist, and to learn about individuals or companies that need to be made aware of the situation;
  • Safeguard the decedent’s home and its contents/personal property if he or she lived alone;
  • Notify the decedent’s life insurance company(ies), retirement, and pension account administrators, especially if you believe you may be a beneficiary of any such policies; and,
  • Notify any other services of which you are aware such as home aides, grocery, or newspaper deliveries, transportation companies, etc.

In addition to the above matters (of which only a few are listed), the Executor nominated by the decedent in his/her will, or the decedent’s Administrator (if the decedent did not have a will), must be authorized by the Surrogate’s Court to handle the decedent’s affairs. Generating the various petitions, waivers, affidavits, and other documents for the Court can be overwhelming and time-consuming for a lay person. Furthermore, a prompt appointment, even if only in a temporary capacity, may be crucial to your ability to preserve estate assets, handle pressing business matters on behalf of the decedent, and deal with potential tax and other liabilities.

Once an executor or administrator has been appointed, that person is responsible to attend to the following items, among many others:

  • Obtaining a federal tax identification number for the estate;
  • Opening an estate bank account;
  • Properly and timely re-titling the assets of the decedent into the name of the estate;
  • Paying creditors’ claims in a timely manner;
  • Ensuring both state and federal estate tax obligations, if any, are analyzed and dealt with, such as making various elections to preserve estate assets, and in filing, sometimes with the help of an experienced accountant, any estate tax returns that may be required;
  • Filing an Inventory and Schedule of Assets with the Surrogate’s Court;
  • Filing a final personal income tax return for the decedent;
  • Selling, transferring, or otherwise protecting real property (such as a home, condominium apartment, commercial property, and other real estate) owned by the decedent in New York State. If the decedent owned property outside of New York State, a separate legal proceeding may need to be initiated;
    • Preparing an accounting to show the beneficiaries of the estate (those entitled to property or assets of the decedent’s pursuant to a will or intestacy laws) what assets have come in and out of the estate, and how you propose to distribute the assets; and,
  • Ultimately, distributing all of the decedent’s assets and closing the estate.

It is also important to know which assets will not become part of the court-administration proceedings. Some examples of assets that ordinarily pass to a specified individual “by operation of law”, that is, outside of the Surrogates Court proceedings, are:

  • Accounts with named beneficiaries (i.e. bank account in name of decedent “in trust for [ITF] Mary Smith)”;
  • Joint accounts with rights of survivorship (the surviving joint account holder will usually become the sole owner of the account without the need to be considered in the probate or administration proceeding, though there are some exceptions.);
  • Life insurance proceeds;
  • Retirement assets (401K, IRA’s, etc.) with named beneficiaries; and
  • Property held in a Trust formed by the decedent, with a designated beneficiary.

We assist clients in determining which assets are eligible to pass in the above manner and in distributing them wisely and in accordance with law. Notwithstanding the potential for such assets to pass outside of the estate, such assets may still be considered in determining the decedent’s taxable estate.

Many other issues can arise during the procedures outlined above, all of which we are readily able to assist you with, such as:

  • Filing for appointment under circumstances when the original will cannot be located;
  • Dealing with the discovery of additional assets after an estate has been closed;
  • Petitioning the court when the decedent’s property is believed to have been withheld from the estate by an individual or entity; and,
  • Defending (or prosecuting) a will contest (a challenge to the validity of a will).

There are numerous scenarios and circumstances that arise in this field. The help of an experienced and caring estate administration lawyer can facilitate the process of appointing the representative of a decedent’s estate, efficiently distributing its proceeds, and handling the myriad of issues that invariably arise. Regardless of whether the deceased died “testate” (with will) or “intestate” (without a will), our experienced attorneys and caring staff members are at your disposal in this traumatic and painful time. Please feel free to contact us following the loss of a loved one. We are here to serve you.

Limited Liability Companies

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LIMITED LIABILITY COMPANIES

Question:  My sister and I are negotiating to buy an established beauty salon, but we’re not sure what legal entity we should use to operate the business. My husband mentioned that a friend of his formed an LLC for his new business.  What are the advantages to forming an LLC?  How does one going about doing that?  And can we do it ourselves, that is, without a lawyer, in order to save money?  Thanks very much.  Roberta G.

Answer: We’d have to have more facts, Roberta, before giving you specific legal advice about your choice of business entity, but let’s start with the general notion that it is not good business to go into business in your own name (a single proprietorship.)  If your business fails, you could lose your personal assets.  The law permits people to form various types of legal entities to insulate their personal wealth from their business investments.  Those entities include corporations, partnerships, limited liability companies (LLCs), and others.  An LLC combines some of the benefits of corporations and partnerships.  For example, an owner of an LLC (known as a “member”) is not personally liable for ordinary business debts unless she or he personally guarantees an obligation or signs a contract in her or his own name (taxes excluded.)  A member of an LLC does not have to be a citizen or a permanent resident.  An LLC, unlike a corporation, does not have to meet certain administrative requirements such as holding annual meetings, recording minutes of the meeting, electing board of directors/officers, filing annual reports and so on.  And, tax laws generally allow members of an LLC to report company profits and losses on their individual tax returns, so as to avoid double-taxation.  We strongly advise our clients who ask us to form LLCs for them to speak to their accountant as there are tax issues that must be considered.

As to your question about doing it yourself, we have seen situations where clients who tried to set up LLCs on their own, ran into major problems.  While an LLC, when properly formed, affords you immunity from personal liability while avoiding double taxation, there are certain requirements which must be followed.  For example, when forming an LLC, you must advertise or publish that fact in a newspaper in accordance with the laws of New York State.  Failure to follow the strict provisions of the statute may result in the loss of immunity for members of the LLC.  An Operating Agreement should also be prepared which will govern the management of the LLC and protect its members regarding matters such as the attempted sale by a member, death of a member, and the like.  It is clearly important to get legal advice to take full advantage of the benefits of the LLC.  The old adage “penny-wise; pound foolish” has, sadly, applied to many people in these circumstances.

As always, if you have further questions, or would like to discuss the purchase or sale of a business, please feel free to contact us.

 

Powers of Attorney

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POWERS OF ATTORNEY

 Question:  After procrastinating for years, my wife and I have decided to create an estate plan.  Are there any documents, other than a will, that we need?  Patrick R.

Answer:  Patrick, you’d be amazed about how many telephone calls and e-mails we get from clients asking us to “make a will” for them While a will is an essential part of most estate plans, it is not the only document that should be prepared.  A thorough estate plan should include a Power of Attorney, an Advance Directive for Health Care (also known as a Health Care Proxy) and, for some, a Living Will.  Several types of Trusts may also be considered, depending on each individual’s circumstances.  In addition, serious thought should be given to reviewing beneficiary designations in life insurance policies, retirement plans, pensions, even bank accounts.  And thoughtful tax planning is also an integral part of an estate plan.  In this edition of the LawLetter, we’ll talk about the Power of Attorney.  We’ll discuss other estate planning documents and ideas in future editions.

Our answer to Patrick’s question starts with a question:  If you become mentally or physically incapacitated, who will make financial decisions for you until you get better?  Who will look after your business?  Pay your bills?  Cash your paycheck?  Sign important legal documents?   Pay taxes?  Buy or sell stocks or other assets?   Clearly, you would want someone you trust to take care of these important matters issues for you.  Other common situations in which you might empower your “agent” to act for you are real estate transactions, banking transactions, insurance matters, Social Security  and Medicare matters, estate matters, litigation, transactions involving retirement or pension benefits; and many more.

So what is a Power of Attorney?  It is a written document by which you (the “principal”) give a trusted person or persons (the “agent” of “agents”) the authority or “power” to act on your behalf.  Contrary to popular belief, an agent does not have to be attorney.  People generally appoint their spouses, parents, adult children, trusted friends, etc., to serve in this important capacity.  The authority your give to your agent can be very broad, or quite limited, depending on your wishes.

A problem that frequently arises if one does not have a Power of Attorney, is that relatives or other loved ones may have to petition a Court to appoint a Guardian to manage financial affairs.  Guardianship proceedings can be expensive, time-consuming, and embarrassing.  Your loved ones will have ask a judge to rule that you are “incompetent” to handle your own affairs—a very public airing of a very private matter.  That is unfortunate and tends to create family discord.

Recently, the State of New York amended the laws relating to Powers of Attorney by adding greater protection for the “principal’ from the actions of less-than-faithful “agents.”  While an already-existing power of attorney is still valid (if properly prepared), the new law adds many important protections.  We’d be pleased to talk to you about updating your Power of Attorney.

As always, if you have questions about any type of estate matter, feel free to write or call.

The Importance of Pre-Nuptial Agreements

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THE IMPORTANCE OF PRE-NUPTIAL AGREEMENTS

Question:  A number of years ago, when my husband passed away, you handled the administration of his estate. Recently, I met a very nice gentleman, and we’re planning to be married in the near future. I am concerned, however, about protecting the assets I now own and about preserving my children’s inheritance when I die. Could you advise me in this situation? Thanks. And regards to all. Sarah D.

Answer:  One way to accomplish this, Sarah is by signing a pre-nuptial agreement with your husband-to-be. A properly executed pre-nuptial agreement can safeguard your assets, protect your children’s inheritances, keep your business in the family, simplify a divorce (should that ever occur) and much more. Actually, we recommend a pre-nuptial agreement in advance of almost every second (or third) marriage. We also suggest a pre-nuptial agreement even in advance of first marriages where there is a substantial difference in the amount of the couple’s respective assets. And, yes, we understand that a pre-nuptial agreement is not a very romantic concept in anticipation of a new marriage—but there are compelling reasons to consider it.

What happens, for example, if your new marriage ends as the result of your death? The law says that your spouse has an absolute right to inherit a portion of your estate (generally one-third) no matter what your Will says. This is of particular concern when you have children from a prior marriage, or other close family members, to whom you would like to leave the bulk of your estate. A pre-nuptial agreement can avoid that problem by stating out exactly what each party agrees to leave to the other, if anything, in the event of death. Your future spouse, for example, can waive (give up) his rights to inherit from you in a pre-nuptial agreement. And while we hope the lyric “Love Is Wonderful The Second Time Around” pertains to you, there is nothing wrong with being smart about going into a new marriage.

A pre-nuptial agreement can also do the following: establish what property will be considered separate or joint; protect one spouse from the other’s creditors; decide whether one spouse will have to pay maintenance (alimony) to the other in the event of divorce; decide how gifts between spouses are to be handled; specify who will pay the mortgage and other bills; and how medical expenses will be dealt with. A pre-nuptial agreement can be as inclusive as you and your future spouse desire. In your case, Sarah, since you have children from a previous marriage, a pre-nuptial agreement is very important because it will make sure that their interests in your estate are protected. Incidentally, having a pre-nuptial agreement doesn’t prevent you from making a gift or bequest to your future spouse. It simply gives you, not a court, the right to make those decisions. In essence, then, a pre-nuptial agreement brings you peace of mind. It lets you know where you stand before you say “I do.”

To be valid, a pre-nuptial agreement must be in writing and signed before the marriage. The agreement must be fair and based on full disclosure of assets and liabilities. We cannot overemphasize its importance—especially in second marriages. Please feel free to contact us if you wish to further discuss this very important subject.

And good luck, from all of us, on your upcoming “nuptials.”

 

Why Do People Buy Homes Rather Than Just Rent?

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WHY DO PEOPLE BUY HOMES RATHER THAN JUST RENT?

During these uncertain financial times it is important for you to consider whether you should become a first-time home (or cooperative or condominium apartment) buyer.  Below are a number of reasons most people give for buying:

Appreciation in Value:  Although we appear to be in the midst of a down-cycle, over the years real estate has been fairly consistent in appreciating.  Homes have been considered a hedge against inflation over the years.  If history is any judge buyers can look forward to an up-cycle and the value of your investment increasing over the years.

Tax Benefits:   The real estate taxes on your residence (as well as a vacation home) will most likely be fully tax-deductible.  Mortgage interest payments are also fully deductible and help make home ownership a tax shelter.  Please note that interest payments on a fixed mortgage are greater at the beginning of ownership and therefore the deduction is greatest during the earlier years.

Capital Gain Benefit:  So long as you have lived in your home for two of the past five years you can exclude $250,000.00 ($500,000.00 for a married couple) of profit from capital gains.  Any profit greater than the above exclusion shall be taxed as a Capital Asset as long as you owned your home for more than one year.  Capital Assets receive preferential tax treatment.  As of this time, the tax on a capital gain is levied at 15% of such gain, far lower, in most instances, from tax on ordinary income.

Pride in the Ownership of Your Own House:  This is probably the number one reason why people buy a first home.  The feeling that you have full control on what you do in your own house from decoration, etc.  It also gives you and your family a sense of security and stability.

Accumulation of Equity:  As you make payments on your mortgage, the balance goes down and your equity increases.  While most of the initial payments on a fixed loan consist of interest on the mortgage, there is also some reduction of principal.  Principal payments reduce the amount of the loan and therefore increase the amount you will receive on a sale of the property.

What is Estate Planning?

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WHAT IS ESTATE PLANNING — AND DO I REALLY NEED IT?

Estate planning is a dynamic process that involves far more than what happens to your assets (your property) after you die.  By intelligently “planning your estate,” you (rather than a judge) can determine, among other things:

How, and by whom, your assets will be managed for your benefit during your lifetime if you become unable to manage them yourself;

When and under what circumstances it makes sense to distribute your assets during your lifetime;

How, and to whom, your assets will be distributed after your death;

How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself;

Many people mistakenly think that estate planning only involves the writing of a will.  That’s not true.  Estate planning can, and should, involve financial, tax, medical, and business planning.  Although a will is almost always part of the estate planning process, you also need other documents to fully address your estate planning needs.

There are many issues to consider in creating an estate plan.

First of all, ask yourself the following important questions:

  • What are my assets and what is their approximate value?
  • Whom do I want to receive those assets—and when?
  • Who should manage those assets if I cannot—either during my lifetime or after my death?
  • Who should be responsible for taking care of my minor children if I become unable to care for them myself?
  • Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?

Virtually every adult needs estate planning—whether the estate is large or small.  First, you should always designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.  If your estate is small, you may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets.  If your estate is large, you should consider various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.

Whether you know it or not, you already have an estate plan.  If you fail to plan ahead, a judge will simply appoint someone to handle your assets and personal care. And your assets will be distributed to your heirs according to a set of rules known as intestate distribution.  And those rules may not mirror your desires as to your choice of heirs.  An estate plan gives you much greater control over who will inherit your assets after your death.  You should seriously consider creating your estate plan.

Estate Planning Basics

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When a client asks us to create an estate plan, we give serious consideration to plan for changes that may occur in our client’s life. Such “contingency” planning is included in the primary estate plan document, whether a Last Will and Testament (“Will”), a Trust, or both.

For purposes of this article, assume that our client, Mary, a widow, has come to us to create her Will, and has three children: Stephanie, James, and John.

Executor

You’ve probably heard the phrase “executor” before. The executor is the person who the testator (the person making the Will) nominates to be in charge of carrying out the wishes of the testator (the person who makes the Will) or the Grantor (the person who creates the Trust). For example, if Mary’s Will directs that her personal property (jewelry, household furnishings, and the like) be given to her three children upon her death, the executor would be responsible for making sure that the personal property is actually distributed to the children. (The executor has other duties, too, but such duties are beyond the scope of this article).

At our meeting with Mary, she indicates that she would like her daughter, Stephanie, to serve as her executor. We would recommend to Mary, however, that she designate one or more successor executors, in case Stephanie is unable or unwilling to serve in that role at the time of Mary’s death.  For example, if Stephanie predeceases Mary (passes away before Mary), and Mary does not name a successor executor, (and has not updated her Will after Stephanie’s death), the Surrogate’s Court would then be responsible for appointing an executor to serve. (In this scenario, the executor appointed by the Court may not be the same person Mary would have chosen to be her executor).  On the other hand, if Mary had named her son, James, as her first successor executor in her original Will, then James would have been able to petition the Court to be officially appointed as executor, in light of the fact that Stephanie passed away.  In this way, Mary has retained complete control over who is appointed as executor of her estate.

Beneficiaries

A beneficiary is a person whom the testator designates to receive his or her property in a Will or Trust.  For example, a testator may choose to make a bequest (gift) of a specific piece of his or her property to specific person.  In the instant scenario, for example, Mary may choose to leave her jewelry to her daughter, Stephanie.

However, let’s assume that Mary chooses not to make any specific bequests in her Will, but desires instead to leave her entire estate outright to her three children, Stephanie, James, and John, in equal shares.  This is perfectly fine, but what happens if Stephanie or James or John predeceases (dies before) Mary?  While Mary can always create a new Will at any time to account for any predeceased children, what happens if Mary doesn’t have a chance to update her Will before she dies?  We, therefore, recommend that Mary make certain provisions in her Will to describe what would happen to her assets in case any of her children predeceased her.

For example, assume that Mary’s three children, Stephanie, James, and John, all have children of their own (Stephanie – 5 children; James – 2 children; John – 1 child).  Mary may wish that if any one of her children predeceases her, the share of her estate that such predeceased child would have received go to her predeceased child’s children instead. In this scenario, we would draft the Will to state that the estate is being left to Mary’s “issue, per stirpes.”  “Issue” means a person’s “lineal descendants,” who are the person’s children, grandchildren, great-grandchildren, etc., and “per stirpes” is a Latin phrase meaning “by the stalk.”  This seems complicated, but it is actually quite simple.  An illustration may be helpful:

Let’s say that Mary’s estate is being left to her “issue, per stirpes.”  Assuming Mary’s three children are alive at the time of her death, this means that Stephanie, James, and John will each receive a one-third (1/3) share of Mary’s estate.  If Stephanie predeceases Mary, however, under a “per stirpes” distribution, Stephanie’s five children will equally share the one-third (1/3) share that Stephanie would have received had she survived Mary, and James and John will each receive a one-third (1/3) share of Mary’s estate.  Changing the facts slightly, if Stephanie and James both predecease Mary, then Stephanie’s five children will still equally share Mary’s one-third (1/3) share, and James’ two children will equally share the one-third (1/3) share that he would have received had he survived Mary.  In this scenario, John will still receive a one-third (1/3) share of Mary’s estate.

Using the same facts as above, another option is for Mary to leave her estate to her “issue, by representation.”  This is similar to a “per stirpes” distribution, but with some distinct differences.  Again, an illustration may be helpful (assuming the same facts as above):

Assume Mary’s estate is being left to her “issue, by representation.”  If Mary’s three children are alive when she dies, Stephanie, James, and John would each receive a one-third (1/3) share of Mary’s estate (the result is the same as it would be under a “per stirpes” distribution).  Similarly, under a “by representation” distribution, if Stephanie predeceases Mary, Stephanie’s five children will equally share the one-third (1/3) share that Stephanie would have received had she survived Mary, and James and John will each receive a one-third (1/3) share of Mary’s estate (again, this is the same result as it would be under a “per stirpes” distribution).  Changing the facts slightly, if Stephanie and James both predecease Mary, the distribution to Stephanie’s and James’ children will be quite different under a “by representation” distribution compared to a “per stirpes” distribution: under “by distribution,” the one-third (1/3) shares that Stephanie and James would have each received had they survived Mary will be combined into a single two-third (2/3) share, and said two-third (2/3) share will be shared equally by  all of Stephanie’s and James’ children. This means that all seven children (Stephanie’s five children and James’ two children) will each receive an equal portion of the two-third (2/3) share.

Compared to a “per stirpes” distribution, Stephanie’s five children are each receiving a larger share of Mary’s estate under the “by representation” distribution, while James’ two children are each receiving a smaller share of the estate than they would have under a “per stirpes” distribution.”  In this scenario, however, all of Mary’s grandchildren who are the children of her predeceased children are receiving an equal share.

Clearly, this is not a simple subject, and this article only touches on the various options that one has when making his or her estate plan. What is clear is that contingency planning be given serious consideration in the preparation of an estate plane. Of course, we would be happy to discuss your estate plan in detail with you during a complimentary consultation.