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LAW OFFICE OF Powered By Docstoc
					                                      LAW OFFICE OF
                                    BRENDAN P. KEARSE
                                                  44 Wall Street, 12th Floor
                                                 New York, New York 10005
                                                 Telephone: (212) 425-6244
                                                 Fax:                (212) 425-6245

         Welcome and subtopics (including Lost Wills)
         Biographical Information
            Legal Services
            The New Estate Tax Rules for 2010 and Beyond (updated!)
            Common Estate Planning Techniques (including House Trusts a/k/a QPRTs)
             Important Legal Disclaimer

    Welcome!  This is the website for the Law Office of Brendan P. Kearse, an attorney located in New York, New York.  His
    practice concentrates on:
            ·          Estate Planning, Wills and Trusts;
            ·         Probate and Estate Administration;
            ·          Lost Wills, and Dying Without a Will;
            ·          Will Contests;
            ·          Planning for Incapacity;
            ·        Guardianship Proceedings and Alternatives Thereto;
            ·        Estate and Trust Litigation; and
            ·        Asset Protection Planning.
    Each of these topics is covered in more depth under the heading “Legal Services” on this website.  
    This website also contains a general discussion of some “Common Estate Planning Techniques”.
    Please do not hesitate to send an email if you have any general questions:  Mr. Kearse will be pleased to
    respond personally, (although please understand that he cannot and does not give legal advice to persons unless he interviews
    them thoroughly and signs a formal Engagement Letter with them).  Please enjoy this website!  
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Biographical Information
BRENDAN P. KEARSE, ESQ. is the principal attorney of the firm.  He is a graduate of Columbia University School of Law and
of Williams College.  Before starting his private law practice, he spent several years practicing at some of the largest firms in the
City of New York.  His legal career was preceded by one year of volunteer work at Covenant House (a shelter for runaway
youth) and a period of study at Oxford University.  Click to Email:     
He has served as a Member of the Committee on Estate and Gift Taxation of the Bar Association of the City of New York.  His
published work has been cited approvingly by the highest court of the State of New York.  He is admitted to practice in the State
of New York and is court-certified to serve as a guardian, guardian ad litem and court evaluator.
Mr. Kearse recently served as Chair of the Board of Elders Share The Arts, Inc., a non-profit organization devoted (i) to
integrating the youth and seniors of New York City through projects that explore the history of the city and its residents, and (ii) to
improving the lives of the city’s seniors through their creative expression in the arts.  Please see for more
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Legal Services
Estate Planning, Wills and Trusts.  Mr. Kearse helps clients to write their Wills, to create trusts, and to do estate planning
generally.  He advises on how to minimize the estate and gift taxes that might otherwise be owed, while designing an estate plan
that is sensitive to the needs and dynamics of your family.  (See Common Estate Planning Techniques, discussed below).  The
best possible tax plan is not always the best estate plan, especially if it ignores (or creates!) tensions in your family.  Fortunately, a
good attorney can suggest a variety of tax-efficient compromises that will suit individual family circumstances.  
Probate and Estate Administration.  After someone dies, the surviving family members usually need to hire a lawyer.  The lawyer
goes to court to have the last Will declared valid (called “probating the Will”) or to inform the court that there was no Will.  The
court will formally appoint someone (the person named in the Will or a family member) to wind up the deceased person’s affairs
and to distribute his or her assets.  The lawyer also advises the person so appointed (called an Executor if there was a Will or an
Administrator if there was not) in the fulfillment of his or her duties.  Additionally, the attorney can prepare certain tax returns and
represent the estate before the IRS if the estate is audited (as certain types of estates usually are).  Except for very small or very
simple estates, retaining an attorney is probably a very good idea.  
Lost Wills, and Dying Without A Will.  What happens if a relative dies and you cannot find his or her Will?  First of all, you should
search thoroughly for any Will.  For example, try calling the lawyer who handled the sale of a house recently, maybe the lawyer
also prepared a Will and is holding it in his or her vault.  Also, trying calling the banks where your relative had accounts and ask
whether he or she also had a safe deposit box.  Sometimes people put their Wills in a safe deposit box (although they probably
should not, because it makes finding and probating the Will much harder).  If you have an exact photocopy of a Will, but not the
original Will, it may be possible to probate the photocopy, although this is not the Surrogate’s Court’s first choice and they might
resist allowing this.
Whether you cannot find the Will or there simply is no Will, the result is the same.  New York law will dictate who gets property
under the “intestacy rules”.  Intestacy, or dying intestate, just means dying without a testament or Will.  In essence, these rules say
that if you die married with no children, your spouse gets your property.  If you die married with children, the spouse will get the
first $50,000 plus one-half of what remains but the children will share the other half, even if they are infants.  This is an
excellent reason to have a Will, by the way, if you have children:  do you really want your fourteen-year-old to have as much
money as her widowed Mom?  Imagine what the teenage years will be like!  Do you want a court-appointed guardian to hold
your children’s money until age twenty-one, taking a fee each year, perhaps unsympathetic to your widow’s request for clothing
or school money?  It happens.  If you die with no spouse and no children, then your parents get your property, or, if you have no
living parent, your brothers and sisters get the property, with any deceased brother or sister also getting an equal share set apart
that his or her children will share.
How does this process of distributing the assets (and paying the bills and taxes) happen when there is no Will?  The process is
almost identical to the probate process.  You generally hire a lawyer to go to the Surrogate’s Court and file a Petition just as you
would if there had been a Will, except that your Petition will state that there was no Will.  The Court will insist that the property be
divided up according to the intestacy rules, and it will watch over the estate more closely than if there had been a Will, requiring
that the administrator put up a bond and get Court permission before selling any real estate, for example.  
What if no one does anything and you think you should be getting part of the deceased relative’s estate?  You should take the
initiative and hire a lawyer!  If no one in the family does anything for more than two or three months, at most, then something is
wrong.  Somebody will wind up controlling the property, rightly or wrongly, and then the fighting starts.  To avoid it, just step
forward and start the Court-supervised intestacy process yourself.  The Court process ensures that everyone gets formal notice of
what is happening and that no one gets cheated, accidentally or intentionally.  The lawyer you hire will probably be paid from the
assets of the deceased relative anyway, so if you were only going to get one-fourth of those assets, you’ll essentially only be
paying one-fourth of the lawyer’s fee.  This is not the time to indulge your fear of lawyers or the court system; you will regret it
At the risk of belaboring this point, I will give some examples: Whether there was a Will or not, you probably need to hire or at
least consult with a lawyer within two or three months of your family member’s death.  Harsh experience shows that frequently
when there is no Will relatives behave as if jewelry, furniture and real estate is just up for grabs.  They ignore the intestacy rules.  
Brothers of the deceased may just take over their deceased brother’s store or apartment building, at first just intending to run it to
preserve it as a business, but later coming to think of it as “theirs”.  Later the deceased’s twenty-something children realize they
have essentially been robbed of their inheritance.  Just because someone died without a Will does not mean that the family can just
make their own private arrangements.  Especially with real estate, you will discover (possibly not until many years later when you
go to sell the property or when the next relative dies) that the money that was saved by not hiring a lawyer in a timely manner is
lost ten-fold when a lawyer has to be brought in a decade later to clear up a very mixed up deed or to sue an aunt on behalf of
someone who was fifteen when his mother died.  Delay never fixes or resolves an estate:  it just drives up the costs and results in
family quarrels so bitter that people frequently do not speak for years.  If someone has died, with or without a Will, you should
consult with and probably hire an experienced lawyer to handle the estate.  Get that ball rolling…
Will Contests.  Sometimes people disagree about something as basic as whether a deceased person had a Will, whether they had
one but revoked it or signed a new Will later, whether they signed the Will at a time they lacked capacity (due to illness, senility,
etc.), or whether the true last Will or gifts contained in it were obtained by someone’s “undue influence” (i.e., improper pressure).  
A Will contest usually starts where somebody has a hunch that something smells fishy.  For example: “Ray never told me he was
leaving his nurse $25,000” or “Why would my brother have cut me out of the Will and left everything to our cousin?  We weren’t
fighting.”  (A related proceeding often starts because someone thinks: “Hey, Ray had a Will.  How come no one’s going to court
to get it probated?”)  Thus, the first step is always somebody trusting his or her instincts, gathering some information and calling a
What will the lawyer do?  First, he will examine the Will if you have a copy.  Second, he will appear on your behalf when the Will
is being offered for probate, effectively telling the judge that this Will might be defective even though it was signed in front of
witnesses or may otherwise appear correct.  The judge will permit the lawyer to examine the witnesses in sworn depositions,
asking questions like: “Did the person who made the Will appear to be frightened or bullied into signing the Will?  Who was
there?  Did he seem like he was in command of his faculties that morning?  Did he appear to be on medications?  Did he
remember who his family members were and what he owned?  Did he know he was signing a Will?”  Additionally, the lawyer may
go on to file formal objections to the probate of the Will and begin subpoenaing the testimony of other persons who knew the
decedent or who may be at the root of the problem.  Sometimes this clarifies that there is no problem, sometimes it reveals real
On the other hand, you may be the named Executor in the Will and you are trying to get the Will probated (accepted by the court
as valid) but someone is fighting it.  In such a situation, your lawyer Will help you respond to the questions of the objectant to the
Will and his lawyer while trying to prove that their concerns are mistaken or unfounded.  Unfortunately, Will contests are
sometimes filed by people who are simply upset that they didn’t “get anything” under the Will.  It bears repeating therefore, that
only spouses are entitled to receive a certain amount from someone else’s Will (called the spouse’s “elective share”) and that
children, parents and everyone else can legitimately be cut out entirely.  If there was no Will, however, New York law will dictate
who gets property.  Many people are surprised to learn, for example, that if a husband or wife dies without a Will and with a
spouse and children, New York law states that the spouse will get the first $50,000 plus one-half of what remains but that the
children will share the other half, even if they are infants.  If you want to cut one of your children out of your Will, therefore,
consult an attorney, because that child will have a real incentive to contest your Will:  if he can get it rejected for probated, he will
get part of the children’s half.
Planning for Incapacity.  Our life expectancies are increasing and advances in medical technology can keep us alive longer.  
Unfortunately, this combination can lead to long periods of partial or total incapacity.   Many clients are concerned about their
health and the effect that their current or future illness may have on the control and uses of their assets.  In this context, an attorney
may prepare Revocable Living Trusts (in which the client names a trustee to manage the client’s affairs for the period of the
client’s incapacity and in which the client lays down the rules for how the property may and may not be used) and Durable
Powers of Attorney (a simpler document in which the client may simply give a very trusted person, such as a spouse, the power to
make binding financial decisions for the client).  There are several other arrangements, with differing benefits, that can address a
client’s concerns about managing their property during illness.
Clients may also wish to prepare documents such as a Health Care Proxy (in which they name someone to make routine health
care decisions for them only in the event they are not in a position to make those decisions themselves) and Living Will (in which
they write to their medical care providers instructing them as to what end-of-life medical treatments they wish to receive or to
decline, should they be unable to express those wishes when the time arises).   
Guardianship Proceedings and Alternatives Thereto.  Sometimes a loved one has assets that he or she cannot adequately manage
without assistance (because of advanced age, or because of an accident).  The incapacity may be minor or great, and may be
temporary, permanent or degenerative.  There are various legal arrangements that can assist such a person.  It may be as simple
as getting a trusted son or daughter to manage a checking account, or establishing in such a trusted relative a power to make
limited financial decisions.  In some cases, the functional limitations imposed by the affected person’s incapacity may force
relatives to consider having a guardian appointed (usually a family member) to protect the incapacitated relative from the
unscrupulous and to arrange for his or her financial and personal care, even so far as to arrange Medicaid payment for a nursing
home and the planning that sometimes needs to be done to make that possible.  
In all such situations, good legal advice is critical to choosing the legal intervention that is least disruptive to the affected person,
and to respecting the areas in which such person does have capacity to order his or her own affairs.  Such situations also demand
that the attorney consulted show a genuine concern for the family involved, because otherwise family quarrels can be created (as
frequently happens, for example, where joint accounts with right of survivorship are involved).
Estate and Trust Litigation.  Sometimes people feel they are not being treated fairly by the trustee of a trust or the executor of an
estate.  Sometimes they believe that a trust or loved one’s estate is being mishandled.  And sometimes they are simply unsure
about their rights and legal options (or their obligations if they are an executor or trustee, etc.) and they need confidential advice.  
Mr. Kearse can provide that advice, and can help negotiate solutions before they become litigation.  He can also provide
representation in defending against such lawsuits or in prosecuting them, should it come to that.  A note to the cautious:  the most
common source of these disputes is a confusing Will or trust agreement, or, frequently, an estate plan that was never updated
when circumstances changed.  It is therefore a good idea to review your estate plan when your family changes (births and deaths),
your assets change (your wealth increases or decreases, you come into an inheritance, your retirement looms) or the law changes
(note that there were major, albeit temporary, revisions to the estate tax law in 2001 and again in 2010).
Asset Protection Planning.  Increasingly, people who have worked hard to build their assets live in fear that an unexpected lawsuit,
business failure or other event could undo a lifetime of work.  Proper asset protection limits one’s exposure to such events.  It is
as legitimate as doing business through a corporation (which, after all, is supposed to limit an investor’s losses to the amount
invested).  What doesn’t it do?  It does not reduce one’s income taxes in any way.  It does not involve techniques that depend for
their success on secrecy or hiding assets.  And it does not work to thwart existing creditors or plaintiffs.  However, whether
through the use of “on-shore” techniques (such as limited partnerships, discussed below) or off-shore techniques (such as trusts
created in countries that do not have automatic recognition of U.S. judgments) asset protection planning is a legal means of
safeguarding your assets from unforeseen, financially catastrophic litigation.
At its most basic, asset protection planning might look like this:  We review your assets and I might notice that you both own a
home and some rental real estate.  What if a tenant slips on the stairs?  He could sue you and seek not just the value of the rental
property in the lawsuit, but the value of your home and bank accounts and car and other property, even though those other assets
have nothing to do with how the tenant got hurt.  For this reason, one recommendation might simply be that your rental real estate
be isolated from your other assets by being owned in a separate corporation, LLC, or partnership.  That way, liability for what
happened at that rental property can probably be limited to, at worst, loss of the property itself.  Asset protection planning is
frequently this simple and logical.
A few words of caution and some tips:  There are many companies offering asset protection advice of very low quality.  Also,
please be aware that courts frequently look right through asset protection structures where the structures were adopted late in a
lawsuit or collection problem.  This is especially true where the court perceives that the debtor’s or defendant’s [i.e., your] sole
intention was to defeat a legitimate creditor or plaintiff.   Whether you use the services of this law firm or another, I would
respectfully suggest that you do asset protection planning (1) with an attorney (because your conversations with your attorney are
by law confidential and attorney-client privileged) who has skills in addition to asset protection planning, not with a company
devoted exclusively to asset protection, (2) well in advance of a problem, and (3) as an integrated part of your normal estate
planning or business planning, implemented over time.  “Asset protection” is a lawful, moral and accepted part of routine business
and estate planning.  
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The New Estate Tax Rules for 2011 and Beyond
2010 was a year of considerable estate and gift tax chaos, but things have now been clarified for 2011 and 2012, with a return to
chaos in 2013 and beyond.  Under a federal tax reform plan enacted in 2001, there was a gradual refining and reducing of the
estate and gift tax system from 2001 to 2009, then a supposed “repeal” for 2010 (it was not as good as it sounds), then beginning
Jan. 1, 2011 there was going to be a reversion to the system that was in effect in 2001 before the tax reform (i.e., estate taxes
come back at you with a vengeance).  The federal government avoided that reversion to pre-2001 levels by passing the Tax
Reform Act of 2010 in December 2010.  So, what is the current state of the estate and gift tax system for 2011 and beyond?  It
works like this…
In 2010:
First of all, only the federal system is in flux; New York State’s system is not changing and has not changed for many years.  New
York still had an estate tax in 2010 and beyond.  Under New York law, you are allowed to die with $1,000,000 tax free.  
Everything over $1,000,000 that you own on your date of death will be taxed at a rate of between 4% and 16% (the more you
own, the higher the tax rate).  Moreover, New York State has not had a gift tax in many years, and that will continue to be true in
2010 and beyond.  So as far as New York State is concerned, the logic for your estate planning is simple and unchanged --- if
you have more than $1,000,000 it’s better to give away money while you are alive rather than giving it away at your death (by
Will, for example).
The federal estate tax, however, was repealed for the 365 days of 2010.  When politicians said it was repealed they often forget
to mention they replaced it with the capital gains tax system.  The federal estate tax rate was 45% but the federal capital gains tax
rate was just 15%.  The estate tax was calculated at your time of death and was payable by your estate 9 months after your
death; the capital gains tax is not payable until your heirs sell your assets, but when they do sell they will need to know what your
tax basis had been (good luck determining that).  Your estate’s tax return can allocate a “step-up” in basis (such that your heirs
don’t need to know what your basis was) for $1.3 million of your property, and for an additional $3 million of property if it passes
to a spouse.  Meanwhile the gift tax is still in force; you can only give away a total of $1,000,000 during your lifetime to persons
other than your spouse, and if you exceed that amount your gifts will be taxed at a rate of 35% (notice that’s lower than the old
45% rate, however).  
For 2011 and 2012:
New York State stays the same as above, and as it has been for years.
But the federal estate and gift tax system now provides that in 2011 and 2012 you can die with $5,000,000 tax free,
$10,000,000 for a married couple.  Moreover, the gift tax is consistent again (we say “unified”) with the estate tax; you can,
alternatively, give away your $5,000,000 during your lifetime without gift tax.  Note that the $5,000,000 amount is indexed for
inflation in 2012.  
After 2012:
New York State stays the same as above, and as it has been for years.
The federal law reverts to pre-2001 rules unless a further law is passed to prevent it.  That would mean each of you and your
spouse could only die with $1,000,000 each, free of estate and gift tax.
What should you do?
1.         Review your existing estate plan with your attorney!  
2.         Think about whether to make gifts this year.  Talk it through with your attorney and/or your accountant.
3.         Try to keep your estate plan flexible because although we don’t know what changes are coming at us, we know they are
coming.  They have been constantly coming at us since 2001 after all.
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Common Estate Planning Techniques
If you think the estate tax will be repealed forever soon, the suggestions that follow do not make sense.  But if you think that some
form of the estate tax is likely to continue to exist in the year you die, say, after 2010, and that you (and your spouse) may have
more than $1,000,000 combined (including life insurance) then many of these techniques, particularly the gifting and charitable
techniques will still make a lot of sense.  

In addition to having an up-to-date Will that ensures that your property will pass to favored individuals, and that names a guardian
for any of your minor children, you may be concerned about whether your assets will be consumed by the estate tax.  If the
combined assets (including retirement accounts and the face value of insurance policies) of you and/or your spouse may exceed
$1,000,000 by the time of your death, you are right to be concerned. Here are some common techniques for reducing the tax that
may be imposed upon your estate (please see the important legal disclaimer at the end of this segment):

    1.            A Credit Shelter Trust In Your Will:  As of January 1, 2002, every U.S. citizen or resident alien was permitted to
            own up to $1,000,000 at his or her death, without imposition of any NY or federal estate tax.  This is called the
    “applicable exemption amount” or the “unified credit”.  As of January 1, 2004, however, it increased for federal purposes
    (not for NY purposes) to $1,500,000; on January 1, 2006 it increased to $2,000,000; and on January 1, 2009 it
    increased to $3,500,000; it was repealed for 2010; it increased to $5,000,000 for 2011 and 2012.  However, assuming
    no further changes in the law, all these changes will expire and the pre-2001 estate tax system will come roaring back at
    just $1,000,000 per person on January 1, 2013.  If all the changes are confusing to you, they should be.  That is why you
    really must consult with an experienced estate planning attorney if the combined assets of you and your spouse (including
    the payout value of life insurance) exceed even $1,000,000.  If you would like a short primer on the problem consider the
    following: If you die after 2012 and simply leave all your property to your spouse, at your spouse’s death she will have the
    property of two people, but a unified credit against estate taxes of only one person.  This will likely result in a needless
    additional estate tax.  To avoid this problem, you need to leave the amount of your unified credit to someone other than
    your spouse, such as your children.  Most people do not want to do that since, in smaller estates, that may make their
    children wealthier than their surviving spouse, or may simply upset the normal family dynamic.  The solution?  Consider
    leaving the amount of your unified credit in trust (called a ”Credit Shelter Trust” or sometimes called a “Bypass Trust”) for
    your spouse (and possibly your children as well) with instructions to favor your spouse and to give him or her easy access
    to the trust property as needed or requested.  That way, as of 2009, between you and your spouse, you can shelter
    $10,000,0000 (2 x $5,000,000 per spouse) and your surviving spouse can still have the security of ready access to the
    funds.  A good estate planning attorney will also suggest ways to make this arrangement flexible enough to deal with the
    next few years of radical uncertainty in the estate tax system.

2.            $13,000 Annual Gift Tax Exclusion: The Internal Revenue Code allows gifts of this amount to be made without the
        imposition of estate or gift taxes.  You can make gifts of $13,000 per year ($26,000 per year if you are married) per
        recipient.  For example: if you are single and have three children, you can give gifts to those children of up to $39,000 per
        year without negative tax consequences; if all three children are married you can give them $78,000 ($13,000 to each
        child and $13,000 to each child’s spouse); and if both you and your three children are all married you could give them a
        total of $156,000 per year ($26,000 to each child and $26,000 to each child’s spouse).  You don’t have to stop with
        your children either, you can make these gifts to your grandchildren, nieces, uncles, even people who are not related to
        you.  Over time, these gifts add up and can reduce your estate --- and your estate’s tax bite --- substantially.  These gifts
        can also be used to fund trusts for persons to whom you might not wish to give cash outright.  (FYI: the people who
        receive these gifts are not required to report them as income for income tax purposes.)  (Note: This $13,000 annual gift
        tax exclusion amount is adjusted each year for inflation, so it occasionally increases, always in units of $1,000.)

3.            Children's or Grandchildren's Irrevocable Trust: These are trusts used by parents and grandparents to accumulate
        assets for a child's or grandchild's education or health, usually.  These can be created for individual children/grandchildren
        or can be created for a class of all your children/grandchildren.  These trusts are frequently funded with $13,000 annual
        gifts, discussed in point two above.

4.            Direct Payments of Medical and Educational Expenses:  In addition to the $13,000 Annual Gift Tax Exclusion
        gifts discussed above, you can pay unlimited amounts for someone else’s medical costs or educational expenses, as long
        as you pay those costs directly to the institution that provided the service.  For example, you could pay your grandson’s
        $45,000 annual tuition to State University and pay his $65,000 worth of uninsured medical bills from an accident this year,
        and still make the additional $13,000 annual gift to him during the holidays (or to a trust or Uniform Transfers to Minor’s
        Account, etc.)  Just be sure that you don’t give the tuition money or medical expense money to your grandson or his
        parents to put toward those expenses; instead get the actual bills and make your checks payable directly to the State
        University and the hospital.

5.            Irrevocable Life Insurance Trust:  Most people do not realize that proceeds of a life insurance policy are subject to
        estate tax.  Thus, if you already had a taxable estate, and upon death your life insurance policy were to pay $2 million to
        your children, they would really only get around $1 million thereof because the rest would go to pay estate taxes on the $2
        million policy.  The solution is an Irrevcable Life Insurance Trust (sometimes called an “ILIT”).   You would create a trust
        agreement and fund the trust with your insurance policy; the trust will say to whom to pay the trust’s property (likely to be
        the life insurance proceeds) upon your death.  Once created, you give up control of the trust and of the policy to the
        trustees that you have chosen (a close friend of yours and your spouse, perhaps).  You have thereby effectively removed
        that insurance policy from your taxable estate.  This way, when you die, the value of your life insurance is not hit with
        estate tax --- since a trust, not you, owns the policy, the policy pay-out is fully sheltered from the 39% to 45% federal
        estate tax.  Your life insurance beneificiaries thus get the full $2 million from the $2 million life insurance policy.  This is a
        reasonably simply and extremely effective technique.  

6.            Charitable Remainder Trust: This is a trust whereby a donor will transfer property to a charitable trust and retain an
        income stream from the property transferred. The donor gets to live off the property for the duration of his life, and at his
        death the charity receives the remaining property.  The donor receives a charitable contribution income tax deduction
        upon creating the trust, and avoids a capital gains tax on the transferred property.  This is an excellent option for people
        who are charitably inclined, and who own highly appreciated assets that they will need to rely upon.  

                 Example:  Mr. Morris is 75.  Most of his net worth is in General Electric stock that he bought thirty years ago.  
                 He needs to live off the income and he is worried that if he doesn’t sell the stock and diversify his holdings, a
                 market decline may leave him vulnerable.  On the other hand, he also worries that if he does sell the stock so that
                 he can buy a mix of varied stocks and bonds, he will immediately lose 15%-20% of his holdings to the capital
                 gains tax.  A solution: Mr. Morris can give the General Electric stock to a charitable trust.  The charitable trust can
                 sell the General Electric stock and, because the trust is a charitable entity, will not owe capital gains taxes on the
                 sale.  The charitable trust will then invest the entire proceeds of the sale in a balanced mix of stocks and bonds,
                 paying 5% of the trust fund to Mr. Smith annually.  Mr. Smith gets to live off 100% of his stocks, not the 80%-
                 85% thereof that would have remained if he had diversified it all himself without creating a charitable trust.  At Mr.
                 Smith’s death the trust will terminate and the charity will receive whatever property is left.

    7.            Fractional Interest Gift: Making a gift of only a part of one’s interest in a piece of property (usually real estate) allows
            the donor to obtain fractional interest discounts for estate and gift tax purposes.  For example, if at your death you owned
            67% of a $1 million piece of real estate, the IRS recognizes that it is worth much less than $670,000 because who would
            want to buy your two-thirds of a piece of real estate and then be stuck dealing with the other one-third owner?  Thus,
            your estate will not owe estate taxes on $670,000, but on some lesser amount.  Another form of a fractional interest gift is
            a House Trust (see number 10 below), sometime called a QPRT or Qualified Personal Residence Trust. This technique
            may permit one to effectively transfer one’s home to children at a significantly reduced estate/gift tax value, while retaining
            to oneself the right to continue to live in the home for a fixed number of years.  The Tax Code specifically approves of this
            QPRT technique.

    8.            Private Foundation: This is a charitable entity often used by higher net-worth families.  Private foundations can be used
            to train younger generations in family traditions of responsible charity, and can provide those family members with a
            reasonable salary (if that is desirable), while entitling the parents’ transfers to the private foundation to qualify for
            substantial estate and income tax deductions.  

    9.        House Trust:  The House Trust (or as the IRS prefers to call it, the “Qualified Personal Residence Trust” or “QPRT”) is
        simply the technique of transferring the ownership of your house from your own name into the name of a trust.  You retain
        the right to live in the home for a specified period of years (the trust “term”).  At the end of that specified period, the
        children (or other beneficiaries designated in the trust agreement) become the owners of the residence.  Thereafter, the
        residence will no longer be a part of your taxable estate.

             The House Trust technique is expressly permitted by the IRS and the tax code, and it has a big tax advantage.  When
        you put your home in the trust, you have made a gift to your children.  However, the gift is not the full value of the house
        on the date of the gift.  Instead, the gift is only the value of the children’s right to take possession of the residence at the
        end of the specified period of years and only if you outlive that period --- thus your children’s interest is worth a lot less
        than the right to own the house and sell it tomorrow, and the tax law recognizes that fact.  The longer a period you choose
        before you will vacate the house and let your children have it (or start paying them rent), the lower the gift tax value of the
        transfer to your children.  The decision you will have to make is “What is the longest term of this trust I can choose where
        I am still reasonably sure I will outlive my right to continue living in the house?”  For example, a $1,000,000 home can be
        gifted to a house trust, removing $1,000,000 from the donor’s taxable estate, but the taxable gift may be as little as 10 or
        20 percent of the value of the residence if you are 60 years old and chose a trust term of 20 years.  By keeping the gift tax
        value of the QPRT transfer below your exemption from federal gift tax, you can avoid laying out cash to pay the federal
        gift tax on the gift --- it will just use up a part of your exemption.  Additionally, while the value of the house may increase
        over the years, you will have fixed its value for estate and gift tax purposes as of the date you created the trust; you have
        thus effectively “frozen” the value of the estate for purposes of your estate, and transferred the future appreciation to your
        children free of estate or gift taxes.  By the way, if you want to continue to live in your house even after the trust term, you
        will have to work out a rental arrangement with your children --- but that’s another good way to transfer assets to them
        without owing gift tax (especially if their income tax rates are lower than yours, as is often the case).  

 Again, all of the above techniques make the most sense in a system where there is an estate tax.  Consult your attorney and
consider whether these techniques are appropriate for you.

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IMPORTANT LEGAL DISCLAIMER:  Nothing on this website constitutes legal advice
or an offer of legal advice.  Unless you have signed an Engagement Letter with Brendan
P. Kearse he has undertaken no responsibility for your legal problems or planning, nor
does he owe any duty to you.  All techniques and ideas discussed on this website are
general in nature and are incomplete descriptions of the law and should not be relied
upon by you.  Consult your attorney.
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Description: 9. House Trust: The House Trust (or as the IRS prefers to call it, the “Qualified Personal Residence Trust” or “QPRT”) is simply the technique of ...