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estate plan

Estate Planning 101

The most common misconception about estate planning is that it requires a substantial “estate.” For many, the word “estate” conjures an image of vast wealth, like that of John D. Rockefeller or Howard Hughes. However, in reality, nearly everyone leaves an estate behind when they die. It could be millions or it could be a house or checking account, but the conclusion is the same: You worked for what you have, and you alone (not the government or assorted relatives) should decide what happens to it. You can’t take it with you, but you can establish peace of mind about where it goes.

What happens if I do nothing?

If you take no action, New York State law governs the distribution of your estate. Your estate goes to court in the county where you lived, and any member of the next-of-kin may be appointed the administrator.  Doing nothing means foregoing the choice of who administers the estate and who gets to claim its proceeds.

What is the difference between a Trust and a Will, and which Type of Estate Plan is right for me?

A qualified elder law/estate planning attorney should be consulted to best resolve this question.  The basic plan is a Last Will & Testament. This document designates an Executor to administer the estate and lays out a plan for the beneficiaries, which can be as simple or detailed as you make it. A Will is also useful for naming legal guardians if you have children who are minors.

Many people consider a Living Trust as an alternative to a Will. Whereas a Will goes to the Surrogate’s Court for probate upon your death (even when it’s uncontested), a trust can be settled immediately without a court proceeding. This often saves time and money in the administrative process.  Instead of an Executor, you name a Trustee. Trusts can also be used to protect assets from long-term care and nursing home costs, to plan for estate taxes, to securely exclude estranged or contentious family members, and to keep assets in the bloodline.

The fundamental difference between a Last Will & Testament and a Living Trust is that a Will is a set of instructions that take effect at death, whereas a Living Trust is active the day that you sign it. A Will lays out a distribution scheme for your estate after you pass. A trust is essentially an entity unto itself, which can hold the title to real property, bank accounts, and other assets immediately upon its creation. Trusts can operate almost as companies do, with the Trustee acting as decision maker.

There’s not a precise calculation to determine whether you should make a Will or a trust. It’s not really a question of your net worth. One key factor to consider is the level of difficulty a probate in your case would entail. This is largely a function of the county where you live, the size and dynamics of your family, and the nature of the assets that would be passing through court. Costly or complex court proceedings are worth avoiding when possible. Another factor to consider is your exposure to long-term care and nursing home costs. These bills can be hundreds of dollars per day for disabled seniors, so it’s important to consider how your assets may be at risk. Certain trusts can protect assets from long-term care and nursing home costs and allow for you to qualify for Medicaid, if necessary.

Other factors that would make you a good candidate for a trust include a blended family (second marriage), a special needs child, property in multiple states, or restrictions on beneficiaries.

What is the difference between a revocable and an irrevocable trust?

Both types of trusts avoid probate and can be used to keep assets in the family. With a revocable trust, you (the trust’s creator) can be the trustee if you like, and make all decisions related to the trust’s administration. You can withdraw income as well as principal, and you can change or cancel the trust altogether. Irrevocable trusts are more restrictive. The trustee needs to be a third party (family member, friend or professional), and the opportunities for you to make changes or access the trust are limited in a number of ways. But by moving assets out of your name and into an irrevocable trust, you can insulate and protect them. Many people choose to make irrevocable trusts to shield their assets from long-term care costs and other risks.

What other documents do I need?

A will or trust is not a complete estate plan. You must consider planning for disability, which becomes an unfortunate reality for millions of Americans. A Power of Attorney is a legal document that designates an agent to act for you on matters of banking, real estate, tax, and other financial transactions. New York State law permits optional enhanced Powers of Attorney with provisions that allow the agent to consult an attorney and make gifts, transfers, and trusts on your behalf if it would serve to protect your assets.

A Healthcare Proxy is a medical plan for disability that designates agents to make medical and end-of-life decisions for you if you are hospitalized and you do not have the capacity to make such choices.  Optionally, a Living Will can provide your agent with detailed guidance on how you would like decisions to be made if you are not able to make them for yourself.

Will my estate be taxed?

New York is one the few states that maintains an estate tax at death, but it affects only the wealthiest residents. The exemption is currently over $5 million. That said, being slightly over that mark makes the entire estate subject to tax. Estate planning can ensure that you have the most tax-advantaged structure possible in place.

How do I get started with estate planning?

Contact us today. We are here to talk to you, answer your questions, and give you the counsel that you need!

 


Michael Wagner is an associate concentrating on elder law and estate planning.  He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.

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