Trusts & Estates - Schwartz

Trusts & Estates - Schwartz - I. INTRODUCTION This...

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1 I. INTRODUCTION This area of the law = planning the disposition of wealth in society = an awesome responsibility. Industrial Nat bank v Morey , 133 A.2d 724 (1950s). T went to have a will drawn. Will construed 50 yrs after drawn in a proceeding b/c the will had created a trust for another’s lifetime. Then a challenge levied that it violated rule of perpetuities. All lawyers and testator long gone, and will declared invalid. Lawyer failed his responsibility. Need almost super-human foresight. For example, the NY Leg enacted Revolutionary (and retroactive) amendments to EPTL to take into acct new econ realities, requiring that the Trustee take many factors into account—total return being just one of them. Both of these apply to trusts made before the legislation. Attorneys who drafted trusts in the 1950’s had no idea this was coming! Needed to have foresight to put language in foreseeing future legislation. T&E law is not about “thou shall not do.” It’s about “thou shall not do in a particular way.” Estate Tax = a tax on the privilege of transmitting wealth at death. It used to be that in a series of life estates, the only estate tax that could be imposed was when the original client died (not when the kids or g-kids died). Congress closed this loophole with the Generation Skipping Tax. Today, when a child dies there may be no tax, but when the grandchildren dies there may be—and at the highest tax rate there is. A. SIMPLE WILL / MARITAL DEDUCTION / 9 BROAD CATEGORIES OF DISPOSING OF PROPERTY Myth #1. Estate Planning mostly consists of the drafting and execution of a simple will, where 1 spouse leaves everything to another spouse. No. This can over-qualify too much for the marital deduction: Dangerous. A simple will can lead to expensive consequences from an estate planning point-of-view. Marital Deduction. Estate taxes recognize a marital deduction, where if one spouse leaves everything to the other, there is no estate tax when 1 st spouse dies, rather, there is a postponement of tax until the 2d spouse dies—then its hit. Thus, to the extent that property qualifies for marital deduction, the tax is only postponed. o But every estate is exempt up to $1m anyway. You can leave up to 1m to a total stranger without paying an estate tax—so you would be qualifying too much for an estate tax when surviving spouse dies. o “I leave my property to my wife for life then to my kids” can still qualify for marital deduction o Quality term interest property (QTIP) can still qualify for marital deduction. Even if you avoid simple will, but the language used creates a gift to a surviving spouse in terms of an amount necessary to avoid an estate tax by qualifying for the marital deduction: “I give my spouse just an amount needed to eliminate an estate tax, exempt amount to kids.” o Dangerous. This year, the amount free and clear = 1 mil, but amount going to increase o Amount jumps to 3.5 mil in 2009! o
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Trusts & Estates - Schwartz - I. INTRODUCTION This...

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