Katz Chwat, P.C.

05/28/2026

Form 706 vs. Form 1041: A Key Tax Planning Decision During Estate Administration

One of the most important, and often overlooked, tax planning opportunities during estate administration is deciding whether certain expenses should be deducted on: Form 706 (Federal Estate Tax Return), or Form 1041 (Estate Income Tax Return). The decision can significantly impact the estate’s overall tax liability and, in many cases, the beneficiaries’ tax burden as well.

Understanding the Difference
Form 706 is used to report the value of a decedent’s taxable estate. Deductions claimed on this return reduce the taxable estate and may lower federal and New York estate taxes.

Form 1041 reports income earned by the estate during administration. Deductions on this return reduce taxable income for either the estate or the beneficiaries if income is distributed.

Expenses That May Be Deducted
Certain administration expenses can be claimed on either Form 706 or Form 1041 — but not both. These “elective deductions” commonly include:
executor and trustee commissions, legal fees, accounting fees, appraisal costs, probate and court filing fees, and investment management expenses.
This creates an important planning opportunity for fiduciaries and advisors.

If the estate exceeds the federal or New York estate tax threshold, deducting expenses on Form 706 may provide greater value by reducing estate tax exposure. However, if the estate is below the exemption amount but generates substantial income during administration, deducting those expenses on Form 1041 may create more meaningful income tax savings.
In some cases, certain expenses accrued before death may qualify for both estate tax and income tax treatment under special IRS rules.

For New York estates, deduction planning is particularly important because reducing the taxable estate may also reduce or eliminate New York estate tax liability. Fiduciaries should evaluate: the size of the taxable estate, estate income during administration, beneficiary tax brackets, and the timing of deductions and distributions.

Choosing where to claim deductions is not simply a compliance issue, it is a strategic tax planning decision that can materially affect both the estate and its beneficiaries.

Read more here: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes

05/21/2026

05/19/2026

A Simple 529 Planning Step That Could Help Your Family Avoid Probate

If you’re contributing to a 529 college savings plan for your child or grandchild, you’re already taking an important step toward their future education expenses. But there may be one additional detail worth reviewing: Does your 529 account have a joint owner or successor owner named? An overlooked issue is that 529 accounts may be subject to probate if no joint owner or successor owner is designated.

Why This Matters
Probate is the legal process of settling a deceased person’s estate. While necessary in some situations, it can create delays, additional legal expenses, and unnecessary stress for surviving family members. A typical probate process can take anywhere from 6–12 months — sometimes longer.
For families with a student actively using 529 funds for tuition, housing, or other qualified education expenses, delayed access to the account could create real financial challenges during an already difficult time.

In many cases, properly naming a joint owner and/or successor owner on a 529 account can help the account avoid probate entirely.

Joint Owner vs. Successor Owner: What’s the Difference?
Understanding the distinction is important.
Joint Owner:A joint owner shares ownership and control of the account alongside the primary owner. They typically have the ability to:
- Adjust contributions
- Request withdrawals
- Update account information
- Manage the account in the same capacity as the original owner
In many families, this is a spouse or co-parent.

Successor Owner
A successor owner does not have access to or control over the account while the current owner is alive. However, if the account owner passes away, ownership transfers directly to the successor owner. This individual is often the person you would want managing the account on behalf of the beneficiary if something were to happen to you. The successor owner designation can generally be updated at any time during the current owner’s lifetime.

A small administrative step with a potentially big impact.
Estate planning is often associated with wills, trusts, and tax strategies, but beneficiary designations and account ownership structures are equally important pieces of the puzzle.

Reviewing your 529 account setup may take only a few minutes, but it could help your family avoid delays, legal complications, and unnecessary stress later on.

As always, thoughtful planning is about more than numbers, it’s about creating clarity and protecting the people you care about most.

05/13/2026

We’re excited to share that Katz Chwat, P.C. has been nominated for Best Estate Planning Lawyer in the Best of Nassau!

Voting is open now, and supporters can vote once per day, every day (through July 9). We’re honored by the nomination and would love your support as we hope to bring home the “Best Of” title this year.

Thank you to our clients, colleagues, friends, and community for your continued support.

You can cast your daily vote here: https://bestoftheboro.secondstreetapp.com/og/25d2f709-f1d1-469b-9c30-1d2067c0d78f/gallery/541721109

05/11/2026

A major legal battle could reshape how tax-exempt organizations engage in politics. A recent case, Freedom Path Inc. v. IRS, highlights the ongoing ambiguity in how Section 501(c)(4) organizations balance “social welfare” with political activity.

In this instance, the government denied Freedom Path’s tax-exempt status, arguing that nearly 80% of its activities constituted political campaign intervention. This would mean that the organization failed to meet the requirement for operating “exclusively” for social welfare.

Some advocates argue for a strict interpretation of “exclusively.” Because political campaign activity primarily serves partisan interests, allowing it under tax-exempt status risks undermining the broader public good. The opposing view argues that some level of political engagement is necessary to advance social welfare goals. After all, public policy and elections directly influence outcomes in areas like healthcare, education, and civil rights.

The outcome of this case could have significant implications for how nonprofits structure their activities, and just how far they can go in the political arena.

For more information, see the full article here: https://www.forbes.com/sites/taxnotes/2026/04/27/the-path-ahead-for-political-activity-and-tax-exempt-orgs/

04/29/2026

Fiduciary Self-Dealing: A Lesson in Loyalty and Accountability

One of the most fundamental obligations of any fiduciary is the duty of loyalty—administering an estate or trust solely in the best interests of its beneficiaries. This duty is breached when a fiduciary engages in self-dealing, placing personal interests above those they are entrusted to protect.

Courts have consistently reinforced a strict standard through the “no further inquiry” rule: once self-dealing is established, the transaction can be voided—regardless of whether it appeared fair. This principle underscores how seriously fiduciary misconduct is treated.

A recent case highlights the consequences. An executor who controlled a closely held company tied to an estate authorized substantial payments to himself without court approval. Despite his position of authority, the court found this to be a clear conflict of interest and a violation of fiduciary duty.

The payments were rescinded, and he was ordered to return the funds. Additional penalties—including potential surcharges and attorney’s fees—were also considered.

Key takeaway: Fiduciaries must avoid even the appearance of self-interest. Courts impose strict liability to protect beneficiaries and preserve trust in estate administration.

For professionals serving in fiduciary roles, this serves as a powerful reminder: transparency, court approval where required, and unwavering loyalty are not optional—they are essential.

Read more here: https://www.nyestatelitigationblog.com/2019/04/articles/fiduciaries/fiduciary-self-dealing/

Recently shared by Katz Chwat, P.C. Associate, Jenna Baillie

04/28/2026

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04/24/2026

Have you put a succession plan in place to protect the long-term future of your business?

Business succession planning is most effective when started early and integrated into a broader estate strategy. Rather than waiting for retirement, illness, or unexpected events, business owners should prepare in advance to ensure a smooth transition of leadership and ownership.

A strong succession plan aligns with personal estate planning and addresses not only death but also incapacity or early departure. It should clearly define who will take over, under what conditions, and how responsibilities will shift. Legal tools like powers of attorney and buy-sell agreements help formalize these transitions and reduce ambiguity.

Buy-sell agreements are especially important in closely held businesses. They establish how ownership interests will be valued and transferred, often using life insurance or structured financing to fund the buyout. This ensures continuity and protects both the business and the owner’s heirs.

Gradual transitions tend to work best. Preparing a successor over time through mentorship and phased delegation allows for a smoother handoff and reduces disruption. Succession plans should also be reviewed regularly and updated as the business and personal circumstances evolve. Clear documentation and communication with key stakeholders are essential to avoiding conflict and ensuring long-term success.

Our attorneys at Katz Chwat, P.C. can assist you and your clients with your estate and business succession planning.





https://www.forbes.com/councils/forbesbusinesscouncil/2025/10/13/estate-planning-why-its-never-too-early-for-business-owners-to-start/

04/22/2026

💼 NYC Considers New Tax on Ultra-Luxury Second Homes

New York City is once again facing a big question: how do you fund essential services without adding more pressure on everyday residents?

A new proposal—backed by Mayor Zohran Mamdani and Governor Kathy Hochul—aims to do just that by targeting ultra-luxury second homes.

👉 If you own a second home in NYC worth over $5 million and don’t live there full-time, you could face an additional tax.

📊 The numbers:
• About 13,000 properties could be affected
• Estimated $500 million in annual revenue

💡 Why now?
NYC is dealing with a projected $2.2 billion budget gap in 2026, and this revenue could help fund priorities like childcare, public safety, and essential city services.

⚖️ The debate:
• Supporters say it’s a fair way to ask part-time luxury homeowners to contribute more
• Critics warn it could drive property sales and discourage real estate investment

📝 What’s next?
The proposal still needs approval from the state legislature, where key details are being debated.

🔗 Want the full breakdown? Read more here:
https://www.businessinsider.com/zohran-mamdani-kathy-hochul-proposed-tax-nyc-explain-2026-4

The proposed tax affects residents who own a secondary property in New York City valued at over $5 million but live elsewhere.

04/14/2026

As estate planning attorneys, we’ve all seen the growing interest in using AI tools for legal tasks, especially among clients looking for fast and inexpensive solutions. A recent article attached below highlights just how far, yet how limited, these tools have come in the estate planning space. The article reviews a study which tested the performance of four AI chatbots: ChatGPT, Claude, Perplexity, and Google AI Mode. The results underscore serious concerns for legal professionals.

Of the tools tested, Claude performed the best, with approximately 69% of its responses rated as high-quality (grade A or B). Perplexity followed closely at 63%. ChatGPT, however, delivered lower-quality results, with nearly half of its responses receiving D or F ratings. Google’s AI Mode fared worst, with a 61% failure rate and an inability to complete the entire test; it stopped responding after question 19.

These results are telling. While AI can generate surface-level explanations of estate planning concepts, it struggles to provide accurate, nuanced, or context-aware answers. Estate planning is a domain that depends heavily on individualized client facts: family structures, asset classes, jurisdictional differences, creditor risks, tax planning, and long-term care considerations. None of these complexities are reliably captured by AI tools in their current form.

The study also revealed a more concerning trend: AI-drafted documents often include boilerplate clauses that are either legally meaningless or outright incorrect. One example cited involved a power of attorney that granted nonsensical powers, which could cause confusion or even invalidate the document. This is not just a matter of stylistic preference; poorly drafted documents can lead to litigation, probate delays, or the failure of the client’s intent entirely.

As estate planning attorneys at Katz Chwat, P.C., this trend presents both a challenge and an opportunity. We must be prepared to review AI-generated documents a client may have with a critical eye, explain the risks of relying on unvetted AI content, and reinforce the value of professional judgment. These tools may be helpful for educating clients about basic concepts, like the difference between a will and a trust, or how probate works, but they are not substitutes for competent legal advice.

Ultimately, the takeaway is clear: AI can be a helpful complement to the estate planning process, but not a replacement for the attorney’s role. Clients need to understand that while technology can accelerate some parts of the process, it cannot yet account for the nuance, customization, or legal complexity that competent estate planning requires. For now, the best use of AI in our practice is as a supplemental tool, never as the final authority.

New research tested four of the best known bots to find out how good they are