Estate issues

Question 1

What is NY’s Negative Bequest Rule?

Answer 1

EVEN IF a Will does not make a COMPLETE distribution of the estate, resulting in partial intestacy→words of disinheritance are given FULL EFFECT. We treat any NEGATIVE bequests as if the “beneficiary” has PREDECEASED the testator Anti-lapse statutestill is operative (if “beneficiary” was an ISSUE or sibling)

Question 2

How are lifetime gifts from testators (post-Will execution)to beneficiaries treated?

Answer 2

Satisfaction of legacies →a lifetime gift (made after a Will’s execution) to a beneficiary named in the testator’s Will was PRESUMPTIVELY made in partial or total satisfaction of the legacy (to be taken into account when distributing the testator’s property in death) ~ Advancement (intestacy) NY has REJECTED “Satisfaction of legacies” doctrine There is NO satisfaction of legacy UNLESS proved by… 1) a CONTEMPORANEOUS WRITING made at the time of the gift; AND 2) signed by the DONOR or DONEE

Question 3

In NY, is it possible to incorporate into a Will by reference to an extrinsic document?

Answer 3

NO! NY does NOT recognize incorporation by reference. Incorp by reference = “I devise all things listed on the piece of paper in my desk” EVERYTHING has to be formally executed (i.e. 7 pt test). The exception of this is the pour over trust

Question 4

What are “nontestamentary acts” AND are they valid?

Answer 4

“Nontestamentary acts”:lifetime acts that have their own purpose or motive independent of any testamentary purpose that occur after a will is executed should be given FULL effect in the distributions made. E.g. “car I own at my death”; “contents of chest”; “furnishings in my living room” EXCEPTION: this is NOT VALID for title documents (e.g. deeds, stock certificates, bank passbooks); THESE can only be transferred as mandated by law

Question 5

What are the 5 types of testamentary gifts that can be included in a Will?

Answer 5

1) Specific gift - only that asset can satisfy the gift “I devise my computer to my son, Seth” 2) Demonstrative legacy - A general amount from a specific source “I bequeth $1MM to be paid from proceeds of sale of my house” 3) General legacy - Gift of a general dollar amount “I give the sum of $56MM to Jim” 4) Residuary disposition “I give all the rest, residue and remainder of my estate to my brother Jim.” 5) Intestate property - If a partial intestacy results because Will has no residuary clause OR something in residuary clause given to a friend who predeceased so anti-lapse does not apply

Question 6

What is an “abatement of legacies” to satisfy creditors’ claims?

Answer 6

When there are MORE claims against an estate than there are assets… Order of abatement of testators’s property to pay debts and claims (absent provision in the will): FIRST PAID FROM…. 1) Intestate & residuary property abate THEN 2) General legacies abate pro-rata (proportionally) THEN 3) Demonstrative legacies abate pro-rata THEN 4) Specific legacies abate AND ONLY THEN… 5) Items that qualify for the estate tax marital deduction

Question 7

What is theademption doctrine?

Answer 7

If a testator makes a SPECIFIC GIFT of property, and the property CANNOT be found or is no longer OWNED by the testator at the time of her death→ the gift FAILS (he loses) Does NOT apply to Demonstrative gifts:If there is no cash available from the specified source, the gift will turn into a GENERAL LEGACY (i.e. other assets will be sold to satisfy a demonstrative legacy) EXCLUSIONS: 1) Beneficiaries can collect insurance proceeds for lost, damaged or destroyed (specific) gifts paid AFTER death. If paid BEFORE death, then gift would adeem and beneficiary gets nothing 2) Beneficiaries can collect proceeds from an executory K (e.g. the sale of a house)to extent paid AFTER death. If K was completed by time of death, the gift adeems and beneficiary gets nothing 3) Beneficiary is entitled to receive money or property into which the proceeds from the sales that CAN be traced

Question 8

Are specific gifts of encumbered property (w/ liens) “exonerated” at time of distribution?

Answer 8

NO! Liens on specifically devised property are NOT exonerated UNLESS the will specifically directs exoneration (i.e. using proceeds from residuary estate) NOTE: a general provisions for payments of debt in a Will do NOT exonerate specific liens – must specifically direct exoneration If not exonerated, the property passes subject to the lien

Question 9

How are bequests of shares of stock (and other securities) treated?

Answer 9

Depends… 1) Stock in closely held corporation→ adeems if sold (i.e. it’s specific) 2) Stock in publicly traded company→ does NOT adeem (i.e. it’s general) If stock does not exist, beneficiary would get paid the value of the shares from other assets EXCEPTION:Stock in publicly traded company ARE specific giftsif the testator bequeathes “my XYZ stock”→ adeems 3)Stock Splits→ treated as a specific bequest no matter what so beneficiary will get all the shares INSTEAD of the original amt NOTE: it’s irrelevant when dealing w/ stock splits whether the testator used “my” language, and/or whether the stock was publicly-traded or closely-held 4) Corp merges & stock is converted → no ademption b/c change in form, not substance (i.e. this wasn’t a sale)

Question 10

What are non-probate assets?

Answer 10

Interests in property that are NOT subject to disposition under the Will or via intestacy (i.e. a Will instruction CAN’T override existing instructions) CATEGORIES: 1) Property passing by right of survivorship (e.g. joint bank account; payable on death securities, etc) 2) Property passing by K (e.g. life insurance policies; emp benefits payable to person OTHER than decedent or decedent’s estate) 3) Property held in trust (i.e. the terms of the trust will govern the disposition of the trust assets) 4) Property over which the decedent held a “pwr of appointment”

Question 11

What is the purpose of the elective share statute?

Answer 11

To protect the SURVIVING spouse against disinheritance by giving him/her a MINIMUM share of the testator’s probate or intestate estate

Question 12

How do you calculate the elective share amt (AND net elective share amt)?

Answer 12

Applies to BOTH PROBATE and INTESTATE estates Elective share = the GREATER of… 1) $50k; OR 2) 1/3d of the augmented estate(= net probate estate + testamentary substitutes) Net probate estate = the value of the estate AFTER pmt of debts, BUT before pmt of estate taxes Testamentary subsitutes = certaintransferred non-probate assets to other persons —————Net elective share = Elective share amt (calculated above) MINUS Any gifts to SPOUSE from Will MINUS 4) Any joint tenancy property b/t SPOUSE & SURVIVING SPOUSE (“1/2 IN, 1/2 OUT”) NOTE: IF negative, elective share is SATISFIED (no right of election) IF positive, electiveis NOT satisfied by the gifts, others contribute pro rata

Question 13

What are 7 key testamentary substitutes (T-Subs) categories?

Answer 13

1) Totten trusts (bank accounts in testator’s name in trust for another) 2) Survivorship estates (joint tenancies; tenancies by the entirety; joint bank accounts; survivor bank accounts) NOTE: watch out for pre- & post- marriage sceanarios 3) Lifetime transfers w/ strings attached (revocable trusts; or trusts where testator retained a life estate AFTER 1992) 4) Employee pension, profit-sharing and deferred comp plans NOTE: if the plan is a “qualified plan”→ only 1/2 is a T-Sub 5) Gifts made w/in 1 yr of death (>$14k; “Gifts causa mortis”, regardless of amt) 6) U.S. gov’t bonds (and other “pay on death” arrangements) 7) Pwrs of appointment (property over which the testator held a PRESENTLY exercisable general pwr of appt) RULE OF THUMB = If testator has an interest in it and can manipulate it, then it’s a T-Sub (i.e. almost all non-probate transfers)

Question 14

What are 6 non-testamentary substitutes?

Answer 14

1) **Life insurance proceeds(whether payable to surviving spouse or third party; counter-intuitive) 2) One-half (1/2) of “qualified” pension & profit-sharing benefits 3) Gifts less than $14,000 even made w/in 1 yr. of death. 4) Pre-marriage irrevocable transfers(i.e. gift to a friend before marriage) 5) Irrevocable transfers made more than one year before death (transfers in which grantor did NOT retain power to revoke, invade, consume or dispose of principal) 6) Transfers (irrevocable) with retained life estate made BEFORE 9/1/92 & during the marriage

Question 15

If positive, how is the elective share satisfied?

Answer 15

TAG LINE = “All beneficiaries contribute pro rata (proportionately)” CALCULATION: FIRST: find the fraction that EVERY beneficiary must contribute = Elective share amount / Probate estate value net of elective share SECOND: multiply every beneficiary’s gift by fraction above

Question 16

Do elective share trusts satisfy the surviving spouse’s right of election?

Answer 16

(probably) NO! For estates of decedents DYING (i.e. Will draft date is irrelevant) on or after Sept. 1, 1994 a life estate will NOT satisfy the elective share entitle If spouse files for elective share(which is HER RIGHT)→ Trust is administered as if SURVIVING SPOUSE predeceased the decedent (i.e. no life estate in the surviving spouse)& “accelerate to the remainderman” SURVIVING SPOUSE’s elective share is THEN satisfied from gifted property and from other beneficiaries “PRO RATA” (including remaindermen), if applicable Caveat - if surviving spouse is given 1/3d or more OUTRIGHT (i.e. the elective estate share IS satisfied), then don’t “kill” trust ———- BEFORE 9/1/94 →Right to elective share could be eliminated through use of an elective share trust that gave surviving spouse a life estate (an income interest for life), as long as at least $50k was given outright to the spouse (i.e. cash, property) If the sum of (i) outright dispositions of at least $50k plus (ii) the principal of the trust, was at least the 1/3 elective share amount→the surviving spouse could NOT elect against the Will

Question 17

What are the procedural rules for electing an elective share?

Answer 17

The right of election is PERSONAL to the surviving spouse ALONE (purpose is to protect the spouse, not her heirs) Cannot be elected by an EXECUTOR or ADMINSTRATOR BUT, a GUARDIAN or CONSERVATOR of an incapacitated spouse MAY elect (w/ Ct approval) FILING 1) If the estate is admitted to PROBATE → Notice of election must be filed w/in 6 mos. after “Letters” are issued by Surrogate Ct. (at the start of the probate proceedings) 2) If there is NO estate administration → Notice of election must be filed no more than 2 years after testator’s death WAIVER The right of election CAN be waived in a SIGNED WRITING (w/ or w/o consideration) that is ACKNOWLEDGED (b4 notary public)… (i) BEFORE or AFTER marriage; AND (ii) as to a particular Will or testamentory substitute, or as to ALL Wills and testamentary substitutes in general NOTE: A general waiver (e.g., premarital agmt) of all rights waives right to elective share or intestate share but NOT to specific gifts made in Will→there MUST be explicit waiver of such bequests

Question 18

How is elective share handled re: multi-jx parties?

Answer 18

If DECEDENT is NOT domiciled in NY at death→ right of election is NOT available to surviving spouse UNLESS decedent EXPRESSLY states in his Will that the disposition of his real property in NY is to be governed by NY law The testator’s Will is admitted to probate and his ENTIRE estate is administered in his state of DOMICILE, BUT “ancillary administrative proceedings” will be req’d in NY to clear title of NY property (situs rule) If DECEDENT is a NY domiciliary → property located outside NY STILL counts toward value calculation of SURVIVING SPOUSE’S elective share [even though the Ct. cannot adjudicate ownership of the property (need “ancillary administration” b/c of the “situs rule”)]

Question 19

In calculating elective share, what is the exempt property set-aside?

Answer 19

Items which the SURVIVING SPOUSE gets “off the top” before property passes through Will, intestacy or elective share – i.e. not counted toward estate. In addition to the elective share, the surviving spouse is entitled to EXEMPT property up to $92.5k in value… 1 car - up to $25k in value Furniture, appliances, computers - up to $20k Up to $25k cash allowance (NOT subject to creditor’s claims, other than claims for funeral expenses) Animals, farm machinery - up to $20k Books, pics, videos - $2.5k NOTE: If NO surviving spouse, goes to kids UNDER the age of 21 In ANY question involving a surviving spouse, MENTION exempt property set-aside

Question 20

When is a surviving spouse DISQUALIFIED from taking an elective share?

Answer 20

Cannot take elective share orexempt personal property set-asidewhen… DISMAL 1) Divorce - a final decree of divorce/annulment 2) Invalid divorce procured by SURVIVING spouse 3) Separation decree (NOT agmt) rendered against SURVIVING spouse 4) Marriage was void - as incestuous or bigamous. 5) Abandonment & Lack of support by surviving spouse. SAME UNDER INTESTACY

Question 21

What is the elective share quick formula?

Answer 21

Net probate estate/intestate
+ T-Subs (full value) (i.e. Totten trust)
+T-subs w/ surviving spouse (1/2 in)
+T-subs with 3P (consideration furnished)

1/3 of elective share estate = elective share amount

Is the surviving spouse satisfied?

Elective share amount
-amount surviving spouse receives under will or via intestacy
- T-subs with surviving spouse (1/2 out)
= net elective share

if the surviving spouse is not fully satisfied, all other beneficiaries contribute pro rata