September 2018 -- Elul-Tishrei 5779,  Volume 24, Issue 9

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How to Fix a Broken Estate Plan

By Bernard A. Krooks, Certified Elder Law Attorney

 

Last month, we discussed the challenges one might face if they decided to write their own will.  We pointed out numerous things that could go wrong and the fact that lawyers do much more than draft documents.   Lawyers make sure that the documents are drafted accurately and reflect your wishes and estate planning objectives.  After all, as we stated, once you are deceased it is likely too late to fix any mistakes you made in drafting your own will.  There is however, at least one very important tool, called a renunciation, which can be utilized in some instances after your death to make things right and help ensure that your estate planning intentions are carried out.

 

Under New York law, if you are supposed to receive property under a will, trust, or even property held jointly with someone else, you may have the right to renounce all or part of such interest in that property.  The renunciation must be in writing, signed and acknowledged by a notary public.  There are also some other legal requirements such as the need to file the renunciation with the appropriate court in a timely manner.  You also must state that you have not received any consideration for the renunciation from anyone who stands to benefit from your renunciation (the person who will get the property as a result of your renunciation).  When you renounce the right to receive property, the property is disposed of pursuant to the terms of the will, trust or otherwise as if you had predeceased the decedent.  Once made, a renunciation is irrevocable.

 

Renunciation is actually based on a very simple concept:  no one can force you to accept a gift or an inheritance.  You can just say no!  So, you might be asking yourself, why would I renounce property that I am entitled to receive?  Well, there may be several reasons, including tax considerations, creditor concerns, or to carry out the testator’s intentions.

 

Here’s how it works:  let’s say you are listed as a beneficiary under your uncle’s will and your children are listed as contingent beneficiaries in the event you predecease your uncle.  However, you are concerned that by inheriting property from your uncle you might be subjecting yourself to additional estate taxes when you pass away and want to leave the inherited property to your children.  The property could potentially be subject to estate taxes twice:  once when you inherit it from your uncle and once again when you leave it to your children.  To avoid this result, you would need to renounce the property when your uncle dies and it would then pass your children at that time.  Thus, there would be only one transfer potentially subject to estate taxes instead of two.  Of course, with the newly revised federal and New York State enhanced estate tax exemption amounts, this tax benefit of renunciation will benefit only those with more significant estates.  In addition, in order for the renunciation to be valid for tax purposes you must meet the appropriate requirements for a qualified disclaimer under the Internal Revenue Code.   Keep in mind that one of those requirements is that you cannot direct to whom the property will go.  Thus, it is critical that you understand what will happen to the property if you decide not to take it, before you finalize the disclaimer.  Often, lawyers will draft documents specifically stating that certain property, if disclaimed, will be held in trust or pass outright to others in order to carry out the wishes of the client and to save taxes.

 

Renunciations can also be used to fix estate plans that do not work due to improper beneficiary designations.  Recall that your estate planning documents are just one part of your overall estate plan and that your will controls only the disposition of property in your name alone at the time of your death.  Thus, property held in trust for someone else or jointly with someone else will pass directly to that person on your death, regardless of what your will says.  However, with a valid renunciation the property may be able to be pass to the person that was originally intended to receive the property, thus fulfilling the testator’s wishes.

 

Renunciations can be a valuable estate planning tool after someone dies, if used properly.   Please make sure you work with a competent attorney knowledgeable in all the issues regarding renunciations to make sure that things are done properly.

 

Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven year, past President of the National Academy of Elder Law Attorneys (NAELA), past President of the New York Chapter of NAELA and also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Call 914-684-2100 or visit elderlawnewyork.com.