How joint bank accounts can hurt an estate plan

It is often convenient for married couples in New York to maintain joint bank accounts while both spouses are living. However, when one spouse dies, joint accounts can cause some estate planning problems. These issues may not affect every estate, but they are important to be aware of.

A joint bank account can allow a surviving spouse to avoid probate and immediately take full ownership of assets that they co-owned with their deceased spouse. The problem is that when an estate passes the bulk of its assets to a joint account holder, the estate cannot take advantage of its estate tax credit. If the bank account is worth more than the deceased spouse’s estate tax credit, then the surviving spouse’s estate may have to pay taxes on the assets when they are later passed to heirs.

If a deceased spouse’s estate tax credit is not used, it will be lost. This is why a married couple with assets that are worth more than the estate tax credit limit may want to keep a portion of their assets in individual accounts. The balances in the accounts may then be passed on to beneficiaries tax-free as long as they are worth less than the estate tax credit limit.

Understanding how to avoid probate and transfer assets to beneficiaries without incurring federal or state estate taxes can be complicated. A couple that is interested in creating a tax-efficient estate plan may want to work with an estate planning attorney. An attorney may be able to help a couple to structure their estate plan to benefit both the surviving spouse and the heirs.

Accounting for beneficiaries in estate plans

New York residents can sometimes use beneficiary designation forms in order to have certain types of property transfer at their death. While many individuals may plan for this possibility, they may fail to consider a plan B.

A careful assessment of an estate plan requires looking into how non-probate assets will transfer upon the testator’s death. Certain accounts do not pass through a will, even if there are provisions to the contrary. These assets include brokerage accounts, insurance policies, retirement accounts and bank accounts. However, if an asset of this nature does not have a beneficiary designation or the beneficiary designation is no longer valid because the beneficiary died, the asset will revert to the ownership of the estate.

Beneficiary designation forms usually contain an area for the primary beneficiary. They will in most cases also allow for a contingent beneficiary as well. This is a person who is next in line to acquire the account if the primary beneficiary predeceases the account holder. For example, a person may list a spouse on a bank account and list adult children as contingent beneficiaries. If the spouse is still alive, he or she will inherit the account. However, if the spouse predeceases the account owner, the children would receive the account assets instead. It is good practice to work with an attorney to periodically review the beneficiary designations and update them if circumstances do dictate, such as marriage, divorce or a birth of a child.

Another effect of owning assets that are distributed in accordance with beneficiary designations is that they do not go through the probate process , which can often be lengthy. This can often make the estate administration tasks easier.

Credit shelter trust may help high-income couples avoid taxes

High-income couples face the potential of paying federal and, in New York, state estate taxes upon the death of one spouse. Each spouse may have an estate that is below the federal exemption, currently $5.43 million. However, assuming that the first deceased spouse leaves his or her estate to the other spouse, the second spouse may die with a larger, combined estate that exceeds the exemption, and the estate may be subject to tax.

A credit shelter trust is a tool to address the situation described above. Like any trust, a credit shelter requires a settlor, the person who provides the money or property; a trustee, the person or entity that manages the trust; and a beneficiary, the person who receives distributions from the trust. Conveying one’s estate to a credit shelter trust removes it from probate and estate tax liabilities.

With a credit shelter trust, the first spouse to die is the settlor, and his or her estate is conveyed with the surviving spouse named as the beneficiary. This allows the surviving spouse to use the trust assets without adding those assets to the surviving spouse’s estate. When the second spouse dies, children or other designated individuals replace the second spouse as beneficiary of the trust. The first spouse’s estate is still exempt from the estate tax if it is below the exemption amount, and the second spouse’s estate is exempt as well because he or she never took control of the first spouse’s estate.

A credit shelter trust may allow a married couple with significant assets to protect their money from unnecessary taxes. A couple with a large estate may want to consult with a lawyer to see if a credit shelter trust might allow them to avoid or minimize estate taxes upon either spouse’s death.

B.B. King’s family accuses manager of estate theft

New York music lovers may have seen recent reports that B.B. King’s family has accused the legend’s designated executor of keeping them away from their loved one prior to his death. King died in his home on May 14 at the age of 89.

King’s family members claimed that not only were they kept away from the blues legend, the executor medically mistreated King and took some of his money prior to his death. Two of King’s 11 surviving children also accused both the executor and King’s personal assistant of poisoning him. The allegations against the two individuals resulted in an autopsy, though the toxicology reports were still unavailable when the report was released.

King’s designated executor denied the allegations. Her attorney argued that the family had been unable to obtain updated values of King’s assets, which including the value of his road-show business and music royalties. On June 5, the attorney provided testimonials from three doctors and an affidavit from a granddaughter which stated that King was properly cared for before his death.

If a person dies without leaving behind a will , the decedent’s assets will be distributed in accordance with the intestacy laws of the state having jurisdiction over the matter. An estate administration attorney may help family members understand their rights should a loved one pass away without leaving a will. If a will was drafted and the designated executor does not timely follow the loved one’s wishes, the attorney may also assist with preparing a request for the executor’s removal.

Source: CBS News, ” B.B. King estate fight looms in Las Vegas, pitting family against business manager “, Associated Press, June 9, 2015

Removing an executor in New York

It is up to an executor who has been appointed under a will to ensure that the testator’s assets are properly distributed. If an executor does not do this in a timely manner or appropriately, beneficiaries may find themselves waiting for property that is rightfully theirs or seeing a loved one’s estate mishandled. In these cases, a beneficiary may have a few options for having matters handled.

The first option available when an executor is not doing his or her job is to send a formal demand letter requesting they fulfill their duties. In some cases, this is all the push that is needed. However, if this is not sufficient, the next step may be to have a lawyer also send a formal demand letter.

When letters from a beneficiary and a lawyer are not enough to get an executor to begin doing their job appropriately, the last option is to file a suit to have the executor removed. At this point, a beneficiary can either petition to have themselves be named as the executor, have a third party named or have the individual named in the will as the successor executor given these duties. In the cases where the court does not have the current executor replaced, it is normal for a strict and detailed timeline to be put in place.

Along with appointing an individual as an executor who can be trusted to carry out the required duties competently and in a timely manner, it is also essential that the will is up to date and complies with current laws. If it is not, a will may be declared invalid, with the testator’s assets instead being distributed in accordance with the applicable state law of intestacy. This could produce a far different result than what the testator had wished.