When presenting workshops and webinars over the past three decades, I often ask the audience, “Imagine you’ve died and are looking down from your cloud at your loved ones below. Your estate plan is working perfectly—what do you see?” Most people reply they would hope their loved ones are receiving their inheritance quickly, with the lowest costs and taxes possible, and with no strife among the heirs. Unfortunately, all too often the idyllic “cloud story” turns into a family nightmare.
It is easy for an estate to fall off the rails, as is illustrated in the following cases I’ve recently encountered. Please note that all names have been replaced with pseudonyms.
BARBARA’S CLOUD STORY
A few weeks ago, I received a call from a man, Robert, who explained that shortly before the death of his mother, Barbara, Barbara sold her home and gave Robert’s sister, Sandra, a few hundred thousand dollars to renovate Sandra’s home so Barbara could move in with Sandra and her family. Robert said that his mother had told him she was providing the funds to Sandra as a loan, with Sandra having to repay the loan to Barbara’s estate so Robert and his brother, Michael, would ultimately receive an equal share of Barbara’s estate, including the money loaned to Sandra.
Unfortunately for Robert and Michael, Barbara had not signed a will before her death, nor apparently had Sandra signed a promissory note proving that the funds Barbara had provided to Sandra were to be treated as a loan. Unsurprisingly, Sandra now claims that Barbara had always intended for the funds from mom to be a gift and not a loan, and Sandra has no intention of sharing those funds with her siblings.
I explained to Robert that he and his brother would have a difficult time proving in court that Barbara provided the money to Sandra as a loan, not a gift. Without a paper trail, any of Barbara’s alleged statements to her sons about the funds provided to Sandra would most likely be inadmissible in court due to the “hearsay” rules.
I further explained that if, notwithstanding the procedural hurdles, Robert and Michael sue Sandra to recoup some of the funds, they will pay thousands of dollars in legal fees, and even then, they are unlikely to prevail.
JANE’S CLOUD STORY
In another matter, I met with a woman, Jane, whose husband, Norman, resides in an assisted living facility, having been incapacitated for several years. They have a sizable estate of approximately $14 million. Several years ago, Jane and Norman executed separate revocable living trusts that included standard estate tax planning provisions designed to fully utilize each spouse’s estate tax exemptions, which are currently $6,110,000 for New York State, and $12,060,000 under federal law.
In reviewing their assets, however, I noticed that Jane, or her living trust, owned approximately $11 million of the couple’s assets, with Norman’s trust owning just $3 million. I explained that if Norman dies first, which seems likely given his declining health, the $3 million in his living trust would be sheltered from estate taxes in both their estates. I further explained that if Jane were to subsequently die (assuming both deaths occurred in 2022), then her $11 million estate would owe New York estate taxes of approximately $1.2 million.
As a simple solution to their potential tax issue, I counseled Jane to transfer ownership of approximately $4 million of her assets to Norman’s living trust. As the sole trustee of Norman’s trust, she can retain full access and control over those assets. Upon Norman’s death, his trust would then own sufficient assets to fully utilize his New York State estate tax exemption, with the assets passing into a “credit shelter trust” to benefit Jane and their children. Then, upon Jane’s death, her taxable estate would likely be sufficiently reduced to avoid the imposition of a New York estate tax.
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While I helped Jane “fix” her cloud story, Barbara’s cloud story, unfortunately, remains a mess. The moral here is that you cannot assume your cloud story will magically turn out the way you hope. Instead, you must share your hopes, goals, and fears with a knowledgeable and experienced estate planning attorney to ensure your cloud story materializes exactly as you desire.
Richard J. Shapiro, Esq., is a Certified Elder Law Attorney by the National Elder Law Foundation, as accredited by the American Bar Association, and is a member of the Council of Advanced Practitioners for the National Academy of Elder Law Attorneys. He has been designated a top-25 in the Hudson Valley “Super Lawyer” and has the highest (AV) rating from Martindale-Hubbell. Mr. Shapiro, who is accredited to practice before the Department of Veterans Affairs, is the author of “Secure Your Legacy: Estate Planning and Elder Law for Today’s American Family.” He is a partner with the Orange County law firm of Blustein, Shapiro, Frank & Barone, LLP. Mr. Shapiro is a member of Wealth Counsel, ElderCounsel, the National Academy of Elder Law Attorneys, the New York State Bar Association (Trusts and Estates and Elder Law Sections), and the Hudson Valley Estate Planning Council. You can reach him at (845) 291-0011 or at rshapiro@mid-hudsonlaw.com. The information in this article is for general information purposes only and is not, nor is it intended to be, legal advice.