Renunciation Of An Inheritance Part 1

Most people welcome receiving an inheritance, but there are times when an inheritance causes problems for the beneficiary. Some beneficiaries want to avoid receiving their inheritance for tax purposes, while others may want to avoid paying a creditor. “Motives or reasons for the renunciation have no bearing on this statutory right, as long as no fraud or collusion is involved.” Matter of Oot, 95 Misc 2d 702, 705 (Sur Ct, Onondaga County 1978).    

Matter of Rosenberg, 2016 NY Misc LEXIS 261 (New York County, January 27, 2016) is an interesting case that involved renunciation for estate tax purposes. In this case, the decedent Paul Rosenberg, a Jewish art collector and dealer who lived in France, owned two paintings by Henri Matisse. In 1940, the Nazis confiscated the paintings. In 2012, the paintings were discovered and determined to belong to the Rosenberg’s who had immigrated to New York. The paintings were valued at over $12 million.

Paul Rosenberg died in 1959. Paul bequeathed half of his residuary estate to his son Alexandre or, in the event that Alexandre did not survive him, to Alexandre’s children. Alexandre died in 1987, survived by his wife and children. Alexandre bequeathed his residuary estate to his wife or, in the event that she disclaimed her interest, to a Marital Trust for her benefit. Alexandre’s wife did indeed disclaim, and as a result, his children were to receive any assets that pass as part of his residuary estate.

Alexandre’s wife petitioned the Surrogate’s Court to permit Alexandre’s estate to renounce an interest in the newly discovered paintings and any works of art discovered in the future that would be found to be assets of Paul’s estate. Her reason for the renunciation was to spare her children the cost of estate tax that would be payable otherwise. EPTL 2-1.11 (c)(2) gives the court discretion to extend the time to file and serve a renunciation upon a showing of reasonable cause. Here, the Court held that the extraordinary circumstances of this case warranted its allowance to extend the petitioner’s renunciation of assets found in the future.  

Subsequently, in 2014, after the Rosenberg family learned about the discovery of several stolen pieces of art held by a German citizen, the Court granted renunciation to the estate of Alexandre. 

Renouncing a property interest for purposes of avoiding creditors is also permissible. In Matter of Oot, Patricia Hoopingarner worked for William Prescott, the petitioner, as a receptionist-bookkeeper from 1972 to 1976. In 1976, the Prescott discovered that Hoopingarner had misappropriated over $40,000. Hoopingarner signed a confession of judgment which was filed in the Clerk’s office. In 1978, her mother, Marion Oot, died and Hoopingarner was named as a legatee under the will.

As long as the beneficiary has not accepted the disposition, a legatee has a statutory right to renounce any gift made by a will (EPTL 2-1.11). Hoopingarner filed a renunciation under the will to avoid paying the judgment against her. Prescott sought to set aside the renunciation as a fraudulent conveyance. The Court held that “the fact that the renunciation of a legacy might frustrate the claims of creditors is of no consequence if the statutory renunciation procedures have been meticulously followed.” Id. at 706.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 2

What happens when a person renounces a bequest?

Filing a renunciation has the same effect with respect to the renounced interest as though the renouncing person had predeceased the testator unless a provision relating to a possible renunciation is included in the will. In other words, if you decide to renounce your bequest, you will be treated as if you died before the grantor did, and your share is redistributed according to the terms of the will.

In Estate of Cooper, the decedent left residuary shares of his estate to his three daughters. He did not provide any provision relating to a possible renunciation of a bequest in his will. When one daughter renounced her bequest, that portion of the estate went to her children. Estate of Cooper, 73 Misc 2d 904, 906 (Sur Ct, Onondaga County 1973).

Because the daughter’s renunciation of the bequest was treated as if she had predeceased her father, the disposition vested in her surviving children, per stirpes, in accordance with the antilapse statute.

The antilapse statute provides that where a testator has made bequeaths to his issue or his siblings, and the beneficiary dies before the testator, the deceased beneficiary’s disposition vests in his surviving issue. EPT § 3-3.3.

By Jacque K. Vincent, JD

Renunciation Of An Inheritance Part 3

Unintended Consequences of Renunciation

One issue to note is that renunciation can negatively impact a distributee’s eligibility for Medicaid benefits or other public assistance. In assessing need and eligibility, the Department of Social Services will consider any financial asset or resource the applicant may immediately or potentially have available. Courts have held that a recipient of public assistance is obligated to utilize all available resources to eliminate or reduce the need for public assistance. Although when a distributee renounces his inheritance and the disposition never vests, the Courts still allow Social Services to consider the inheritance as a potential resource for the applicant when determining eligibility. Molly v Bane, 214 AD 2d 171, 176 (2d Dept 1995).

Something else to be aware of is that proceeds recovered from an action for wrongful death cannot be renounced. Renunciation is limited to the distribution of testamentary or administration assets. Since proceeds from a wrongful death action are not passed through a testamentary instrument, renunciation is not applicable. In re Estate of Summrall, 93 Misc 2d 420 (Sur Ct, Bronx County 1978).


By Jacque K. Vincent, JD

Damn the Torpedoes (40 Years Later) and Full Moon Fever (30 Years Later)

When Tom Petty tragically died of a drug overdose in 2017, he left a wife, Dana York Petty, and two daughters from his first marriage, Adria and Annakim. He also left a catalogue of music that his fans crave for, including the anticipated album “Wildflowers – All The Rest”, which was to feature unreleased tracks from the original “Wildflowers” recording session. The release was intended to coincide with the 25th year anniversary of the release of the Wildflowers album on November 1, 1994.

Tom Petty appears to have engaged in some substantial estate planning over the years. His trust named his second wife Dana as his sole successor trustee. Since his death, she served as trustee. His trust directed that Dana was empowered and directed to “create a California limited liability company (or such other entity as the Trustee deems appropriate) … to hold [Tom’s] Artistic Property”.

Tom gave Dana broad discretion in creating the entity, the execution of an operating agreement and establishing a governance structure. Tom provided only one caveat: that Dana, Adria and Annakim “shall be entitled to participate equally in management”.

The estate plan seems solid and simple enough. His fans eagerly await each release of subsequent Tom Petty compilations. Since his death in October of 2017, two complications have been released. Now the release intended for this coming November is in jeopardy and at risk and it seems that an unraveling of the planning of Tom’s estate is the heart of the problems.

The court filings and other reports indicate that Adria has apparently changed her mind on key decisions, including her stated intention to delete “and the Heartbreakers” off the artist name on one of the prior complications. She emailed two founding members of the Heartbreakers on that subject and stated: “what I don’t have the temperament for is having my entire life raped. Being disparaged. My dad being disgraced. And being surrounded by selfish, unreliable people and drug addicts.” Adria has stated an intention to delay and postpone release of “Wildflowers” and has gone further, stating to record executives that she will be taking over control of the estate in short order.

It all seemed so clear when Tom provided his lawyers with his instructions and they presumably wrote them into the documents correctly and clearly. Certainly there was no room for interpretation or ambiguity. Three people shall be entitled to participate equally in management.

According to Adria and Annakim, participation equally means just that. Each person has one vote in the management decision making. Adria has texted that all decisions shall be “majority rule” and that it will be smoothly run as a result. They argue that this was Tom’s intention and his words were clear.

On the other hand, Dana argues that Tom did not intend to give his daughters the right to rule by majority and he did not intend to disenfranchise Dana entirely. She argues in her petition filed with the court that “equal participation in management can only be ensured by requiring consensus for significant decisions; otherwise the opportunity of the majority – Tom’s daughters from his marriage to Jane- to abuse and exclude [Dana’s] minority position, which will inevitably lead to endless litigation, would be a virtual certainty”.

What happened here? Did the drafting attorney fail to consider the family dynamic of children from a prior marriage managing a business with the second spouse?

From a litigation standpoint, the LLC concept should be clearly defined in order to reduce the chances of what seems to be a highly likely dispute in a case like this. Second spouses and children from a first marriage are harbingers of estate litigation. Knowing this, the drafter could have specifically designated the second spouse and the two children from the prior marriage as the co-managers of the LLC and that each manager has one vote – if that was the intention. Otherwise, if the creator of the trust intended operations to be in perfect harmony, he could have said so. He could have specified that management decisions must be unanimous. While that seems a set up for paralysis, it could have been his intent that his highly valuable and substantial artistry collection be managed and operated in a holistic and collaborative fashion.

This type of estate plan could have also added a tie breaker and deadlock breaker provision. If desired, the creator of this type of plan could have included a dispute resolution provision with requirement first for a friendly mediation facilitated by a third party neutral and then for arbitration.

How the Safe Act Impacts the Transfer of Firearms In an Estate

Inheriting a firearm can be a complicated process. A fiduciary of an estate cannot just give the firearm directly to an heir without the risk for potential criminal liability. Unlike other personal property, passing firearms on to a loved one after the death of the owner has its own unique rules and can be a challenge to the estate’s fiduciary if not specifically addressed during the estate planning stage.

New York’s Secure Ammunition and Firearms Enforcement Act, better known as the SAFE Act, can create the risk of criminal liability for executors and administrators as well as for the estate’s heirs where the parties are unaware of the rules.

Pursuant to the SAFE Act, a fiduciary must lawfully dispose of the firearm within fifteen days after the death of the owner. If the fiduciary is unable to transfer the firearm to the heir within fifteen days, the firearm must be surrendered to a law enforcement agency. The law enforcement agency will hold the firearm until the heir is licensed or otherwise permitted to take possession. However, if the agency does not receive a request to deliver the firearm within one year of the delivery, the firearm will be deemed a nuisance and destroyed (NY Penal Law § 400.05[6]). Fifteen days is a relatively short amount of time in which to make the transfer because a fiduciary cannot lawfully transfer or dispose of a firearm until he has been appointed by the Court.

Before the firearm can be given to the heir, the fiduciary must (1) know that the decedent legally owned the guns; (2) know that the specific beneficiary of the guns may legally own a gun and (3) adhere to proper transfer procedures. The heir receiving the decedent’s firearm must hold a valid New York State gun permit. Illegal possession of a decedent’s registered firearm without following the statutory protocol for estate transfer to an heir is a misdemeanor, specifically, criminal possession of a weapon in the fourth degree (NY Penal Law § 265.01).

In addition to a state firearm permit, a federal background check is required for a firearm to be transferred. But there is an exception to his rule when it comes to transfers between immediate family members such as spouses, domestic partners, children and step-children (General Business Law § 898).

Contributed by Jacque K. Vincent, J.D.

Trust Funds for Pets: It’s Not All Doggie Bones and Biscuits

Estate and trust litigation can occur for a variety of reasons. A trust fund dog named ‘Winnie the Pooh’ experienced this first hand. There, the trust manager and the pet’s new caretaking fought over the frequency and amount of money distributed from the trust.

The dog’s owner had set up a trust for $100,000 for the dog with the remainder for an animal hospital. The dog’s caretaker reportedly ended up having to sue the estate’s executor after he allegedly failed to make trust payments for the dog’s care. The caretaker further alleged that the executor had refused to provide records relating to the trust and the pet’s medical history, and that the executor was favoring the remainder beneficiary. The executor denied the allegations and blamed the caretaker for the confusion.

The merits of a case like this will depend largely on the fiduciary’s legal obligations under the law and the specific terms of the trust. Of importance would be the degree of discretion afforded to the trustee in the trust instrument for making payments. The parties should retain records to support their position, including copies of letters, payments, receipts, demands, refusals, and bank records. Relying on ‘he said, she said’ evidence will end up costing both sides a lot in legal fees, and it may even significantly reduce the trust if the judge awards attorney’s fees out of it.

Family members or remainder beneficiaries may also attempt to challenge a pet trust that leaves a large sum of money to a pet. Leona Helmsley left twelve million dollars in trust to her “beloved Maltese, Trouble.” The court held that twelve million dollars was excessive and reduced the amount to only two million dollars.

Another owner reportedly left $4,761,346 in trust for two cats (see Matter of Abels, 44 Misc 3d 485 [Sur Ct, Westchester County 2014]). The executor of the will argued that based on the cats’ life expectancy and estimated costs, the amount of the trust should be reduced to $440,000. The executor also argued that by selling the mansion and relocating the cats to a smaller residence, the tax liability could be reduced and the charities could receive more.

The judge denied the executor’s request to reduce the trust. The judge held that the decedent’s intent was clear and should be followed. The judge reasoned that the pet owner wanted the cats to live in the house they were comfortable in and made specific arrangements for this.  The judge concluded that it was not the court’s place to “rewrite the decedent’s will” and to give more to the charities than the decedent intended. 

Luckily, justice prevailed for these cats. They were able to stay in their mansion and enjoy their lives in luxury.

Trust Funds for Pets – What’s Next? Dogs in Tuxedos?

Historically, New York hindered pet owners from providing for their pets after death. If money was left to a pet in a will or trust, the courts would simply ignore it. A pet owner could only request that the money be used for the pet’s care. The problem was that the person designated to help the pet could decide to disregard the decedent’s wishes and instead discard the animal.

In 1996, New York finally recognized pet trusts. This meant that a trust could now be used to protect a pet from being abandoned or left at a shelter. Better yet, a trust could be used to continue a pet’s standard of living and provide it with treats and toys for the rest of its life.

Pet trusts operate largely like any other trust. A person is named as a trustee to act as a manager and distribute the trust funds. The trust has a beneficiary. The trust also contains terms for the trustee to follow. Such terms may include the brand name of pet food, the type of snacks, a schedule for eating and grooming, the name of the boarding facility to place the pet if the custodian goes on vacation, pet medications, and end-of-life care.

There are however two unique components to pet trusts. First, unlike human beneficiaries, pets cannot assert their own rights or hire counsel. The pet trust law (NY EPTL § 7-8.1) therefore provides for an enforcer to enforce the trust terms. Second, the courts may reduce the size of the trust if it is excessive.

So, now that pet trusts are valid, what’s next? Tax deductions for doggie day care? Hamsters with checking accounts? Turtles with charge cards? Cats on deeds? Marriage certificates? Well, that just sounds crazy! But only time will tell. Until then, we will have to settle for make-believe, dressing up our pets in silly little outfits like mini-tuxedos and treating them like children.

Do You Trust Your Brother?

The names are different, but the facts are often the same. Unfortunately, more often than not, the outcome is also the same. The outcome does not have to be the same in every case. The maxim: an ounce of prevention is worth a pound of the cure is sadly most fitting.

Illness / Rely on family

Floyd W. Fisher was diagnosed with stage IV lung cancer in July 2015. Shortly after his diagnosis Floyd named his brother Larry Duane Fisher as his agent under a durable power of attorney. This document, which is very common, gave Larry complete control over his brother’s affairs. Presumably this was a sound decision. Larry had been a deputy for the Kit Carson Sheriff’s office. Larry told Floyd’s daughter not to worry and promised her that when her father died, he would handle the estate and file a probate case with the court. Certainly, the family was relieved that Floyd’s affairs would be handled in a competent trustworthy manner by a family member with a law enforcement background.

Death / Suspicion

Later that year in December, Floyd died. With no probate having been filed by Larry, Floyd’s daughter petitioned the court to handle his estate. After her appointment she found out the truth.

The truth

Larry stole from his deceased brother’s estate. He drained a bank account with more than $200,000, established for his brother’s care and treatment, down to $13.59.

He sold a piece of real property that had been in his brother’s wife’s family for generations to obtain funds for Floyd’s care. Almost $200,000 from that sale was earmarked for “the sole purpose of Floyd’s care and benefit and to pay his medical bills”. Larry changed the address on the account to his home and began to transfer the funds to several different accounts, including one for his teenage son.

Larry bought a Toyota truck for about $45,000 and purchased multiple guns with his brother’s money.

The outcome

In the end, the total amount spent from the account on Floyd’s care was $13,192.15, which included the cost of his funeral, $4,870.

In May 2017, Floyd’s daughter filed a criminal complaint against her uncle Larry. On December 6, 2018, Larry was found guilty by a jury in Denver Colorado of felony theft.

While the outcome may be just, it is unfair to the victims and leaves the family of the decedent with no real remedy if they cannot cover the assets.

What can be done to prevent this?

Prevention

The outlook and suggestions presented on prevention is based upon experience in litigation of this nature.

Retain a respected and experienced lawyer knowledgeable in the planning practice area. Great resources for referrals to those professionals are other lawyers, CPA’s, bankers and asset or investment advisors.

Do not make the decision to grant a power of attorney to anyone lightly – including family and particularly, “friends”. In many instances, friends and family are unsuitable agents due to conflicts, family animosity, jealousy and insatiable temptation. Professional advice concerning suitability of the intended agent is highly beneficial and can prevent a bad outcome. Using a professional can allow for a background check, credit check or other appropriate inquiry into the proposed agent – before the documents are signed.

Consider appointment of a disinterested person. Family members often are willing to serve for free. Why? Indeed, in many instances the principal does get what he pays for. When family members or friends offer to serve for free the professed altruism must be critically assessed. An agent can be compensated by the principal. Fair, but nevertheless relatively modest compensation has the potential to expand the class of persons suitable to serve as an agent.

Consider utilizing more than one person. New York law allows for more than one agent to be nominated and for the principal to decline to allow them to act separately. At the outset two individuals may be appointed to act together. Consider checks and balances and perhaps a monitor to review and supervise the actions of the agent. Any agent suitable for consideration for appointment must be a person absolutely trusted.

Split the duties among a small number of trusted people or create some redundancy so that more than one person has knowledge of the finances and the transactions as they occur. An easy measure that affords a lot of potential protection is requiring that more than one account statement be issued each month and that they be mailed to different persons. For example, the agent and the principal’s accountant.

Do not appoint a person susceptible to creditors, predators, greed or temptation.

Avoid new “friends” who are merely acquaintances. For example, a new home health aide, handyperson or other similar service provider or helper.

Involve professionals. Consider utilization of a banker, lawyer, CPA or other similar professionals who are regulated, supervised or licensed, and often insured.

Another option to consider is a springing power of attorney instead of a present grant of total control. The benefit of this technique is that the power is not granted to the agent until the happening of an event – often a medical or capacity related decline.

Conclusion

With counsel, Floyd might have been better advised to establish a trust. There was no indication that he lacked the capacity to do so. He certainly had sufficient assets to justify the effort and the work. A trust for his benefit during his life might well have prevented all of the harm. He could have nominated a local bank to act as the trustee during his life. This approach would have almost certainly prevented the outcome here.

The Great Wealth Transfer

About 45 million U.S. households will transfer over $68 trillion in wealth over the next 25 years.

On November 20, 2018, CNBC reported that baby boomers are the wealthiest generation in American history and that they will turn over the most wealth ever to next generations.
The article said: “yet that exchange might not be as large as you had hoped if you don’t take the right estate planning steps”. Today, we look at the CNBC topics from an estate litigation perspective. Pitfalls of some potentially good advice are offered here. This is intended to be a helpful high level consumer guide for people considering acting on suggestions offered by CNBC’s journalist MacKenzie Sigalos in her recent article . We follow her topic headings here.

Preservation

The first point made in the CNBC piece was that you should ensure there’s still some wealth to pass down. In our practice we are often exposed to client problems exacerbated by procrastination. Delays in coming to grips with one’s mortality and the decisions associated with the inevitable can erode the base of wealth built over years of hard work and careful savings. Risks of dementia or a more catastrophic illness can crush or destroy the ability to plan by a loss of capacity. Time is often an important requirement of a well thought out plan. Great estate plans often need time to evolve and work to preserve, gift or unfold wealth accumulated over a lifetime.

Preservation can be ruined by risks of loss. Do consider whether adequate insurances are available. Insurance comes in many forms to address a host of risks. Health, life, liability and long term care insurances must all be considered. Insurance costs are often thought to be high, but it is often well worth the cost when asset protection or wealth preservation is at risk. For example, long term care costs can quickly consume all assets. An auto accident where you are at fault can create liability in excess of policy limits fast where someone is seriously hurt. If your work exposes you to suits you must consider the adequacy of insurances. A proper life insurance product can often cover debts and taxes as well as make the surviving beneficiaries wealthy.

We often focus on the facts associated with the decision making of the decedent in our practice. Do they appear to have been clear minded and associated with a rational process? Were there strong and disinterested competent professional advisors involved in an effort to protect assets or preserve wealth? What was the outcome of the effort?

Death & taxes

CNBC ‘s story recognized correctly that most estates are below the current estate tax exemption. That point is pertinent to the federal rules. However, the rules can be tricky if you have made gifts or the state estate tax threshold differs from those of the federal rules.

What is the correlation between the overall value of the estate relative to its liquidity? Were strong and smart decisions made pre death as well as post death within the context of the administration of the estate? Post death, does the accounting by the fiduciary state that the assets were properly handled in order to timely pay appropriate estate taxes?

Set up a trust

This direction appears in the CNBC article with this heading. While that approach can be a positive technique for some people, sometimes funding the cost of the work to make the trust, including efforts to retitle assets into the trust, simply are not worth it for many people. A good question to ask is what is the objective to be achieved? Is the trust intended to be for asset protection – is it for protection from predators, creditors and other nefarious interlopers who may try to benefit from the grantor or her beneficiaries?

We look at the purpose for the trust. Was the intended purpose legitimate and sound? Not everyone needs a trust.

Sometimes trusts are written unclearly or contain mistakes. Some trusts are unclear as to who is intended to benefit. In those instances a construction proceeding in court before the Surrogate Judge is required. Ordinarily that focuses on the issue of the decedent’s intent at the time that the trust was signed. In many cases we represent the fiduciary and call the drafting attorney as a witness to testify under oath for the trust or estate to prove the decedent’s intentions at the time the trust was written.

Consider a living trust

This concept is promoted in the article as a suggested manner by which to avoid probate. The article stated that avoiding probate keeps your wishes private. We have seen many instances where this type of work is not done correctly or completely creating a nightmare for the survivors. Trusts must be properly funded in order for them to work. Unfunded or partly funded trusts present a problem. It often culminates in both a probate proceeding as well as a trust administration. In those instances there is no privacy and often double the legal work in the end. Sadly, the legal work that had been done earlier in connection with the living trust is often of little to no value to the client and her survivors.

In one case, we found that the trust had been fully and properly set up, and the attorney’s legal file closed. When the decedent died it was discovered that a deed was never prepared to transfer the home from the decedent’s name to the trust during her life. This defeated the exact purpose of the trust, as it was intended to hold the house and then pass it on after the decedent’s death to the survivors.

We find that the living trust requires a high degree of continuing attentiveness to ensure that all assets are transferred in it. Otherwise, assets that remain outside the trust may be found to pass to unintended persons.

Our Conclusions

With all of this wealth soon to pass there are many opportunities for good intentions to go awry. Surely this will lead to lawsuits and challenges to good solid estate plans where great work of highly competent planners will be successfully defended. It is crucial that lawyers doing the estate planning and their clients remain highly focused on the desired outcome and objectives of their work together. When we defend estate planning work we find that very often the best work is that tailored for the individual client. Estate plans are personal. Where the legal work is carefully done by a planner to state the instructions of the decedent on the documents the outcome is usually very good. The passage of this great wealth in America will not be without challenges. It is important for the consumer to remember that there is no one size fits all in the estate planning practice.