TRIMMING THE BUDGET – A BRIEF GUIDE TO GETTING YOUR PROPERTY ASSESSMENT REDUCED
With the economy in a slump, families and businesses are digging deep for savings. For many, property taxes loom large on the monthly budget and, for many, they are steadily rising! But property tax assessments can be challenged and reduced in certain circumstances. As a responsible landowner, you should be aware of your rights to review and challenge your real property tax assessment and potentially reap valuable savings.
The primary objective is to receive an assessment that is not excessive. An assessment is a determination made by the assessor as to the value of your real property. The assessment is then used by the assessor to calculate how much you need to pay in taxes.
Real property is assessed each year based on its condition and ownership on a particular date called the “taxable status date,” which is usually March 1st. The assessor looks at the value as of March 1st regardless of changes in the conditions of the property after March 1st. Therefore, if there is a decrease in value after March 1st because of a fire at the property, the tax liability is not lowered for that year. Conversely, if a new building is erected on the property after March 1st, the assessment is not raised that year.
You can access assessment information for your property at the local assessor’s office. Information regarding the assessment of all properties in the taxing district are compiled and contained in what is called the “assessment roll.” The assessment roll is an annual publication and includes all the taxable and exempt parcels in your taxing district and sets forth the assessed valuation.
Is the assessment appears excessive or improper for another reason (described below), you are well advised to call an informal meeting with the assessor. At that meeting, you will want to present all relevant facts as to why the assessment is excessive or improper. You may bring written proof including an appraisal and may even have your appraiser present at the meeting to bolster your position.
It is imperative that you meet with the assessor before May 1st, being the date the tentative assessment roll is published, because once the tentative assessment roll is published, the assessor no longer has the power to adjust the assessment him or herself.
If you fail to convince the assessor that the assessment is excessive at the preliminary informal meeting, there are formal procedures that must be followed to protest the assessment. Between the notice of tentative assessment on May 1st and the filing of the final assessment on July 1st, the landowner has a window of opportunity to challenge the assessment before the Board of Assessment Review, which is a body of officers within each local government that hears and determines complaints in relation to assessments.
You cannot avoid this step and the timing for filing a complaint is critical. A complaint must be filed before the third Tuesday of May, called “grievance day.” The Board meets on grievance day to hear complaints and the following days.
Beyond errors on the face of the roll, there are four grounds to challenge an assessment, i.e., it is unlawful, unequal, excessive, or the property was misclassified. The most frequent grounds of appeal are that the assessment is unequal or excessive.
An unequal assessment is where the property is being assessed at a higher percentage of value than the average of all other properties on the same roll. For example, one may claim the subject property is being assessed at 100% of the value where the average assessment of properties in the district is 80% of the value. Demonstrating the percentage to compare to differs depending on the type of property. For one to three family residential properties, the State Board of Equalization and Assessment sets the equalization rates or ratios for counties, cities, towns and villages. The owner will simply see whether the ratio is consistent with that promulgated by the State Board. For other properties including commercial properties the owner will need to establish first the value of the subject property and then the average percentage of value at which all other property is assessed on the assessment roll. Then the average percentage is applied to the value and the result is compares the result to the assessment.
An excessive valuation on the other hand is where the value exceeds the full value of the property, which is forbidden by the New York State Constitution. Also, an excessive valuation will be where the value includes improper elements of value such as an unfinished structure. The owner will want to have evidence of value whether it is by appraisal or comparable sales data.
If the Board decides in favor of the assessor, notice of the decision is served upon the landowner. The landowner then has 30 days after the filing of the final assessment roll to commence a legal action.
Judicial review is by an action pursuant to Article 7 of the Real Property Tax Law and is brought in a Special Term of the Supreme Court, State of New York. The basis for challenging the assessment will be the same as that argued before the Board of Assessment Review.An expedited procedure is available to the owners of one to three family residential properties. The statutes allows a Small Claims Assessment Review procedure which culminates in a hearing where the owner and assessor presents appraisals, comparable sales data, and other evidence in support or against the assessment.
It behooves us to review all possible areas of savings in these economic times and property tax savings is no exception. While there is no guarantee that one’s efforts may be successful, where circumstances warrant, the reduction of taxes may available.
Estate Planning for the Environmentally Minded
With the long-term rise in oil prices and the near consensus that human conduct is contributing to climate change, people have become overnight converts to an ever growing array of new “green” lifestyle alternatives from the glamorous to the mundane — everything from hybrid vehicles to straw bale homes to non-bleached bathroom tissue.
Among the dizzying variety of “green” living options, people often overlook the estate planning and asset management techniques that can provide a tangible and potentially more significant means to benefit the environment. During these difficult financial times, it is important to recognize that these techniques can confer significant financial and tax benefits while maintaining needed flexibility, both during life and upon death. Some of these techniques are not exclusively for purposes of estate planning, but when combined they all contribute to a comprehensive estate and asset plan for the environmentally minded.
The first planning technique is the conservation easement. A conservation easement is a legal agreement between a landowner and a land trust or municipality that permanently limits uses of the land in order to protect its conservation values.
A working farm overlooking the Shawangunk Ridge is a potential setting for a conservation easement. The farmer may want to ensure that his land will always be used for farming so that the scenic views of the Ridge will be preserved and enjoyed by the community for generations to come. If he wishes to sell the property, a mere promise from the buyer that he or she will keep the farm intact will not be enforceable in a court of law. A conservation easement, however, will legally protect the land and the easement will “run with the land.” Thus, if the farmer’s estate were to sell the land upon his death, all subsequent owners would be bound by the restrictions contained in the conservation easement.
Landowners often shy away from the conservation easement because, by its nature, it limits how the property may be used and, except in rare instances, it cannot be revoked. However, it is a flexible device and can be crafted to permit certain specified uses and even some development in the future. The terms of the easement should be negotiated between the landowner’s attorney and the municipality or land trust receiving the easement, and it would provide for the continuation of certain uses based on the needs and goals of the landowner. There are many variables that the attorney must discuss with the landowner before he or she signs the conservation easement. The easement may permit the construction of additional structures, roads and paths. The farmer in the above example may even permit the development of a portion of the property. The landowner may wish to permit public access for hiking and scenic enjoyment.
In addition to the obvious environmental benefits of the conservation easement, there are significant tax benefits. With respect to estate tax, the Internal Revenue Code provides that if a person dies owning land subject to a conservation easement, the owner may deduct the value of the easement from the gross estate. Additionally, if certain geographic, ownership, and other criteria are met, up to forty percent of the land value can be excluded from the gross estate with a cap of $500,000. With a combined Federal and New York State estate tax rate of approximately fifty-five percent of the taxable estate, significant tax savings may result from the use of a conservation easement.
The conservation easement also confers income tax benefits on the landowner. The Federal government allows an income tax deduction in the year the easement is created equal to the value of the easement up to fifty percent of the landowner’s adjusted gross income. The deduction can be carried over into subsequent tax years if it is not fully utilized in the year of the easement. There is an added incentive for a full time farmer or rancher who can deduct up to one hundred percent of his or her adjusted gross income. Whereas the Federal government allows a one-time income tax deduction, New York State provides an ongoing annual tax credit against income of up to $5,000 per year. This credit survives the landowner’s death and can be claimed on the estate’s annual income tax returns, which is particularly useful if the real property is held in trust by the family for many years after the landowner’s death.
The second estate planning technique is a testamentary gift of money or property to a charitable organization devoted to conservation. An individual can make the gift either in a will or trust. The will or trust would simply provide for the bequest to the organization. The gift can be a specific dollar amount, percentage of the estate, or a gift of real property. The testator could also make the bequest contingent upon another event happening such as certain beneficiaries predeceasing the grantor. Depending on the testator’s wishes, the will or trust could require that all specified bequests to family members be satisfied first before the gift to the charity is made.
There are numerous benefits of including a bequest in a will or trust. For one, the assets remain in the individual’s control during life, so he/she can modify or revoke the bequest at any time prior to death. Additionally, there is no upper limit for such a bequest, and the entire bequest can be used as a charitable deduction against the gross estate for estate tax purposes. The deduction would reduce the tax to be paid by the estate thereby preserve more of estate for distribution to the decedent’s family and beneficiaries.
While testamentary gifting is a fairly straightforward technique, the will or trust must be worded very carefully to avoid unintended consequences. For example, if the will provides that a portion of the estate should pass to a particular conservation organization and the organization ceases to exist before the individual’s death, the share intended for the organization would pass to the other beneficiaries under the will, a result that may not have been intended. To avoid this, language should be included in the will or trust to provide that, if the chosen organization is not in existence, then the bequest would pass to another organization with a similar charitable purpose.
The third technique employs what is called a charitable gift annuity. Certain conservation organizations offer this option whereby an individual can transfer cash, securities or other property to the organization. The organization in turn pays out to the individual a lifetime annuity, and the principal passes to the organization after the deaths of the income beneficiaries.
The benefits of the charitable gift annuity include an immediate income tax deduction for a portion of the gift to create the annuity. Moreover, the annuity payments are treated as part ordinary and part tax-free income. If the gift is funded with appreciated property, the annuity payments are also part capital gains income, which is usually taxed at a lower rate. Finally, the individual has the satisfaction in knowing the gift was put to work for environmental or conservation purposes. One caveat: the prospective donor should be careful to ensure the organization is well capitalized, since the annuity would likely be backed only by the assets of the organization.
Whether they are labeled as glamorous, mundane, or somewhere in the middle, the estate and asset planning techniques described above allow the environmentally minded individual to leave a lasting legacy of environmental stewardship, all while conferring significant tax and other benefits to the donor for his or her life, and often for generations to come.
Trust In Will Indestructible Even When All Heirs Agree To Terminate It.
Suppose an individual creates a trust in his will naming his wife as trustee and also as income beneficiary during her life. The trust further provides that the testator’s children of a former marriage will receive the trust assets when the wife dies. The testator passes away and it appears that the trust will exist for many years. Unfortunately, there is mounting ill will between the second wife and the children even to the extent that litigation may not be far off!
The question then arises — can the trust simply be terminated so that the children can receive the remainder free of trust? The wife and children discuss the possibility of terminating the trust early and, luckily, they agree that it would be in everyone’s best interest to do so. The estate will be promptly settled and the parties will go their separate ways — another crisis averted.
Not so fast….
Even though in this example all the parties agreed to terminate the trust early, one individual was left out — the testator, and courts in New York will not permit the testator’s intent to be supplanted by the survivors notwithstanding their unanimous agreement.
Courts have uniformly held that a trust created in a will, i.e., a testamentary trust, is an “irrevocable expression of the testator’s intent,” and that the trust’s duration cannot be “foreshortened by judicial fiat or by act of the interested parties.”
At first the rule seems illogical because it appears at odds with reason and efficiency. However, it is a matter of public policy that a last will and testament is the expression of a person’s intent and, once the person dies, his or her intent cannot be second-guessed.
The prohibition on terminating a trust early can make an already tenuous situation worse. It is not uncommon for family members to experience friction in dealing with a decedent’s estate, but this can be heightened by the unique trustee/beneficiary dynamic. Often beneficiaries will resent trustees controlling ‘their’ money, and on the other hand, trustees feel justified asserting control because trustees are vested with sole legal authority to administer the trust. With this friction already part of the equation, adding a lengthy trust administration can put the participants over the tipping point.
The question then is what to do. First and foremost, by careful estate planning, these issues can be planned for. The will can, for example, grant the trustee power to withdraw principal from the trust and pay it to the beneficiaries, even ‘to the full extent thereof,’ which can have the same effect as terminating the trust. Alternatively, the testator will need to carefully choose who will be the trustee with a mind toward personalities, existing relationships, and possible conflicts. The testator may even nominate a financial institution to act as trustee or co-trustee. The will may also specifically grant the trustee the authority to terminate the trust provided the trustee does not act arbitrarily, unreasonably or with some improper motive.
If it is too late and the testatrix dies without including these types of provisions in her will, post-death options include the trustee voluntarily resigning his post to be replaced by a trustee better be able to work with the beneficiaries. In this case, the trustee must sign a formal renunciation, but must attempt do so prior to being appointed by the court. Obtaining court permission to resign after appointment is much more difficult.
There is a narrow exception to the rules barring an early termination where the trust has become “uneconomical.” This would be the case where, for example, the trust assets are $38,000 and the trust incurs $1,000 in expenses.
The revocable living trust should be distinguished from the trust in a will regarding the early termination prohibition. The revocable living trust is created and funded during the creator’s life and, provided the creator, trustee and beneficiaries consent, the trust can be terminated. However, after the creator dies, the trust once revocable becomes irrevocable.
All of the above should highlight the importance of careful estate planning and, particularly, being careful whom you name as trustee and the possibility (or probability) of conflict. These steps will go a long way to make life a lot easier for your heirs especially where the estate will have a lengthly life of its own due to the use of trusts.
Important Tips to Avoid a Will Contest
When you sit down to work out your estate plan, it is wise to also take certain key precautions to avoid a will contest. Even though an individual may be certain that his or her beneficiaries will not challenge the will, many real life cases have proven such a conviction wrong. A childhood injustice by one sibling against another, jealousy regarding one child’s relationship with a parent, or a remarriage can be the seeds of division during life and fuel a will contest after death. This is especially true where there are substantial assets in the estate.
First and foremost you will want to make sure an experienced attorney prepares your last will. It may be tempting, especially in a modest estate, to prepare your own last will. You may be trying to save money and avoid the legal fee. This would be a serious mistake because it could result in your estate expending ten times the amount in legal fees in a will contest.
An experienced attorney will be intimately familiar with the formal will execution requirements. These requirements must be followed to the letter for the will be valid under New York law. Section 3-2.1 of the Estates Powers and Trust Law provides that the will must be signed by the testator or the testator must acknowledge that the signature appearing on the will is his own in the presence of at least two witnesses. The testator must also declare to the witnesses that the document is his last will. The witnesses must attest the signature within one thirty day period and, at the request of the testator, sign their own names. No provisions after your signature will be given any effect and beneficiaries under the will should not also be witnesses or they will lose their bequests.
The second reason you will want an attorney to draft your last will is that it creates a presumption of due execution. A presumption is significant because, even if the attorney draftsperson does not independently recall the will execution, the fact that the attorney supervised the execution will often persuade the court that the execution formalities were followed.
Additionally, there are particular clauses in a last will that further insulate the last will from attack including an attestation clause. This clause recites the execution requirements and is inserted after the testator’s signature and before the witness’s signature. The existence of this clause allows jury to infer due execution.
A beneficiary may challenge a last will claiming the testator lacked the capacity to do a will. The court’s finding will often hinge on the testimony of the attorney draftsperson and the witnesses as to whether they believed the testator had capacity (which is further reason to have an attorney draft and supervise the will execution). However, there are several extra steps that can be taken to shore up a finding of testamentary capacity when and if an objection is later lodged on this ground.
Testamentary capacity arises most commonly where the testatrix is elderly or is suffering from a serious physical or mental ailment. Under these circumstances, you may decide to undergo a psychiatric examination at time of will. A finding of capacity or competency by an impartial professional can be highly probative. Another examination one year after the will execution would create a definitive record. If the testatrix was competent one year after the will execution, she was even more likely competent earlier since many illnesses including types of dementia tend to worsen over time.
You may also want to videotape the execution ceremony to provide further evidence of capacity. Of course this could help or hinder the case for the last will depending on the condition of the testator. Provided the testator will appear rational, aware, and lucid, videotaping can give unparalleled, graphic proof of testamentary capacity that could be impossible to rebut.
Next, it is extremely important to avoid the existence or even appearance of undue influence by one or more beneficiaries upon the testator. A commonly employed ground to defeat a last will is that a beneficiary, and usually one who receives a greater share of the estate, had the opportunity to and did in fact exercise influence over the testator such that the last will does not express the wishes of the testator but instead the wishes of the beneficiary. Notwithstanding this, there may be circumstances where the testator wants to benefit one beneficiary more, in which case, the following additional precautions should be taken.
First, it is helpful to write a letter or note to be stored in the attorney draftsperson’s file describing the reasons why you are choosing to benefit one beneficiary more than others. For example, you may have made a substantial gift to a beneficiary in lieu of a full share under your last will. Indeed, you may write a letter to the beneficiary who is to receive less to explain what you intend to do and why. Of course, you should draft the letter and it should not be drafted by or with the assistance of the benefited beneficiary.
Second, you should avoid using the favored beneficiary’s attorney, even if he or she comes highly recommended. If you have your own attorney, that attorney should be used or, if there is none, find an unassociated attorney with no connections to the family.
Third, the favored beneficiary should not be present at the estate planning meetings or the will execution ceremony. If you need assistance in going to the attorney’s office and the favored beneficiary is the only person who can bring you, at the least the beneficiary should wait outside the meeting room and may even want to take a walk outside during the meeting.
Additionally, you should set up the meetings with the attorney yourself, if possible. In one case I handled, the favored beneficiary attended every single meeting with the testator. In another case, the favored beneficiary not only attended each meeting, but also scheduled every meeting. The most extreme case was where the favored beneficiary attended every meeting, set up all of the meetings, and the testator was not even present at any of the meetings! This last case resulted in a 100% victory for the person contesting the will on the grounds of undue influence.
Finally, the testatrix must take extra precautions to avoid an appearance of undue influence where she has a confidential relationship with the favored beneficiary. A confidential relationship can arise either as a matter of law, such as where there is a power of attorney, or as a matter of fact where the facts show the testatrix was weak and susceptible to influence and that she relied on the beneficiary.
When doing estate planning it is important not only to be mindful of the financial effects of the estate plan, but also whether it could spawn a will contest. Taking the precautions above could make a huge difference in ensuring the process of inheritance is smooth and litigation free.
A Resolution: Avoiding Risks This Year
With the arrival of the New Year, it is a good time for business owners to revisit their risk management plans. Like New Year’s resolutions that are all too easy to forget, one must be on the look-out for the ever changing risks a business faces and take steps to minimize them.
This article will briefly address some common examples of risks small businesses face and how they can be avoided or addressed from a legal perspective.
At the outset, I recommend writing a list of risks and solutions, or a risk management plan. This plan lists all of the potential risks and ways the risks can be avoided or addressed. There are general risk factors that all businesses face including the economy, loss to property by fire or flood, and injury on the business premises. These are often addressed by insurance including property/hazard insurance, liability insurance, workman’s compensation insurance, etc.
Beyond these general risk factors, liability protection should be a key consideration in any risk management plan. In addition to insurance, the manner in which business assets are titled is critical to avoiding personal liability by the owners. Generally, any assets held by a shareholder or member of a business entity are shielded from the claims of the business’s creditors. It is not enough, however, to just set up the business. To retain liability protection, the business owner must be vigilant to maintain the corporate formalities including holding annual meetings, sending proper notices of meetings, and the taking minutes. If these formalities are not followed on a regular basis, it can result in a court disregarding the entity and holding the member(s) personally liable.
Also, businesses will want to be sure the rights and obligations they share with other businesses, partners, vendors and customers are clearly spelled out in a written agreement. In this slow economy it may be tempting to skip the requirement of a written contract with the normal protections for fear that it could scare away the potential client or customer. However, a carefully drafted agreement is worth its weight in gold because it can help avoid expensive litigation.
For example, a carefully drafted contract or credit agreement will hedge against the risk of ballooning accounts receivables. The agreement should not only include interest for late payments, but also, if possible, a personal guaranty by the individual business owner. With a personal guaranty, if the business declares bankruptcy or has no assets, the individual owner is still on the hook. The contract should also include provisions allowing the collection of attorney’s fees and costs incurred. The prospect of having to pay an attorney is often enough to prevent a debt from being collected. There are other common sense precautions including doing background checks, bankruptcy and judgment searches and limiting credit to business partners, vendors, and customers.
Also, partnerships and joint ventures can unwind easily. This eventuality must be planned for in a carefully drafted partnership agreement. Often clients complain after the fact that they did not get the partnership agreement in writing or were not as careful as they should have been because they trusted the other person. Again, a carefully drafted agreement will cover numerous critical issues including each partner’s rights and obligations relating to profits and losses, voting, management, withdrawal and retirement, and other issues. If these steps are not taken at the outset, it is likely that the partners will be spending a lot of money and time in either a drawn out legal dispute or arbitration.
Employees present a host of additional risks that need to be planned for. Business owners should review their personnel files to be sure their employment agreements are updated to cover all potential risks. For example, depending on the type of business, it may be very important for the employment agreement to include restrictive covenants preventing unfair competition including the use of trade secrets, or former employees soliciting hard-earned clients. Businesses should also have clear confidentiality policies in place and restrict access to confidential information to select employees.
Other risks associated with employees involve their treatment for tax purposes. A common risk for construction companies is an audit by the Department of Labor for not paying into the unemployment insurance fund. This happens when a company treats workers as independent contractors versus employees. This involves a multipronged analysis and an accountant or attorney should be consulted whenever it is questionable whether the person should be treated as an employee or independent contractor.
Sexual harassment is a risk employers should be aware of. To hedge against this risk and the potential of liability to the employer, there should be a clearly defined policy and handbook drawn up and, often, classes can be offered to educate employees as to what is acceptable or unacceptable conduct.
In sum, it is important to be open and aware of the negative risks, but it is also important to be aware of positive risks that may lead to growth in the business. Taking on a business risk is okay (and necessary if there is to any substantial growth) as long as it is well thought out and planned for.