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Estate Planning in Italy and New York

While nobody wants to think about death or disability, establishing an estate plan here and in Italy is one of the most important steps you can take to protect yourself and your loved ones.  Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.
 
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs.  Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated.  The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent.  This process can be lengthy, costly and stressful.  Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny.  If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home.  A will does not take effect until you die and a power of attorney may be insufficient.
 
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care.  The law allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself.  You can do this by using a durable power of attorney for health care where you designate the person to make such decisions.  In addition to a power of attorney for heath care, you should also have a living will which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.

Avoiding Probate
If you leave your estate to your loved ones using a will, everything you own will pass through probate.  The process is expensive, time-consuming and open to the public.  The probate court is in control of the process until the estate has been settled and distributed.  If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled.  It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be.   With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
 
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children.  If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations.  You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters.  You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time.  A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children.  The person, or trustee in charge of the finances need not be the same person as the guardian.  In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances.  Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law.  Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
 
Other issues to consider in this respect is whether you’d like your beneficiaries to receive your assets directly, or whether you’d prefer to have the assets placed in trust and distributed based a number of factors which you designate, such as age, need and even incentives based on behavior and education.  All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
 
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary.  Make sure that your plan does not create an additional financial burden for the guardian.
 
Planning for Death Taxes
The IRS will want to review your estate at death to ensure you don’t owe them that one final tax: the federal estate tax.  Whether there will be any tax to pay depends on the size of your estate and how your estate plan works.  Many states have their own separate estate and inheritance taxes that you need to be aware of. There are many effective strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.
 
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause?  Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death.  Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
 
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays.  You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you.   Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.

 

Estate Plannning for High Net Worth Individuals

You've worked hard your whole life to provide for your family and make your loved ones more secure.  Without advanced estate planning strategies, much of the significant assets you have accumulated may end up with the IRS and state taxing authorities.

Our firm regularly assists affluent families with such sophisticated planning strategies as Family Limited Partnerships or Limited Liability Companies, Personal Residence Trusts, Irrevocable Life Insurance Trusts and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes and Generation Skipping Transfer Taxes. 

Family Limited Partnerships
A Family Limited Partnership (FLP) is a form of a limited partnership among members of a family. The main advantages of forming and funding an FLP involve estate and gift tax savings and asset protection. An FLP also allows you to retain control over the transferred assets while enjoying these advantages.

Once the FLP is established and your assets are transferred to it, you can make gifts of limited partnership interests to your children or other beneficiaries. This accomplishes several different estate planning objectives simultaneously. 

First, the value of each limited partnership interest which you give away decreases the value of your taxable estate and, consequently, any tax which your heirs would have to pay upon your death. The gifts are made using the annual gift tax exclusion, so you do not have to pay any gift tax on the transfer. 

Second, the value of the partnership interests transferred to your beneficiaries is far less than the corresponding value of the assets in the partnership. Since limited partners do not have the ability to direct or control the day-to-day operation of the partnership, a minority discount can be applied to reduce the value of the limited partnership interests which you are gifting. Furthermore, because the partnership is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the limited partnership interest. This allows you to leverage the FLP as a vehicle to transfer more wealth to your beneficiaries, while retaining control of the underlying assets.  Lastly, a properly-structured FLP can have creditor protection characteristics since the general partners are not obligated to distribute earnings of the partnership.


Qualified Personal Residence Trusts
Our homes are often our most valuable assets and hence one of the largest components of our taxable estate.  A Qualified Personal Residence Trust or a QPRT (pronounced “cue-pert” allows you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it.  Here is how it works: You transfer the title to your house to the QPRT (usually for the benefit of your family members), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes.  After the end of the specified period, you may continue to live in the home but you must pay rent to your family or designated beneficiary in order to avoid inclusion of the residence in your estate.  This is may be an added benefit as it serves to further reduce the value of your taxable estate, though the rent income does have income tax consequences for your family.  If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though in most cases you are no worse off than you would have been had you not established a QPRT.  An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the trust is established and your residence is transferred to the QPRT.


Irrevocable Life Insurance Trusts
There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes.  While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose about half of its value to estate taxes. 

An Irrevocable Life Insurance Trust is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.  The ILIT will be the policy owner and beneficiary.  Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. Your beneficiaries forgo the present gift (in lieu of the future proceeds) and the trustee uses the remaining gift to pay the premium on the life insurance policy.

There are many options available when setting up an ILIT.  For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage.  You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.

Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated and effective estate plan that allows for the maximum transfer of assets to your loved ones

 

Also see the following FAQ on Wills in Italy.


The law firm of Marzano Lawyers PLLC has attorneys and lawyers licensed in Italy, New York, Connecticut and US Federal Courts.



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| Phone: +39 089.224.842

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