What is Estate Planning?
Estate planning is one of the most important steps any person can take to make sure that their final property and health care wishes are honored, and that loved ones are provided for in their absence. Though often overlooked or put off in favor of more immediate concerns, a comprehensive estate plan can resolve a number of legal questions that arise whenever anyone dies: What is the state of their financial affairs? What real and personal property do they own? Who gets what? Does a personal guardian need to be appointed to care for minor children? How much tax will need to be paid in order to transfer property ownership? What funeral arrangements are appropriate?
What is an “Estate”?
Your “estate” consists of all property owned by you at the time of your death, including:
- Real estate
- Bank accounts
- Stocks and other securities,
- Life insurance policies,
- Personal property such as automobiles, jewelry, and artwork.
- Business Interests
- Retirement Accounts
What is Probate?
“Probate” is the name given to the legal proceeding by which property held in the decedent’s name alone is transferred to his or her heirs. Information regarding a probate proceeding is generally available to the public, thereby giving creditors and other interested parties a chance to file claims or other types of challenges to the proceedings.
The proper heirs of a decedent’s estate may be determined in accordance with his or her Will, if there was one, or by New York law, if there was none. Contrary to what some people think, if a deceased individual does not have a Will, the State of New York does not “take” his or her property. Rather, the State of New York simply “writes a Will” for the deceased individual based upon what the New York legislature has approved as generally accepted terms. These generally accepted terms are referred to as “intestacy laws”. Generally speaking, these laws favor a surviving spouse and children – although not necessarily on the terms and conditions that an individual might want.
Not all assets are subject to the probate process. For example, jointly held assets need not be probated. The same is true with regard to “pay on death” or “transfer on death” accounts. These type of assets are said to pass by operation of law. Certain other assets will also generally avoid probate, such as life insurance or retirement benefits. These type of assets are said to pay by operation of contract. In many instances, it is tempting to try to “avoid probate,” but there are many pitfalls to be avoided. You should be certain that you have a thorough understanding of all of the implications of how assets are titled. It is possible or, in many instances, likely that unexpected problems may arise when an individual attempts to avoid probate without adequate information.
What if I Have an Out-of-State or very old Will?
Out-of-state wills are generally valid in New York, although problems sometimes result when they are not executed in accordance with New York law regarding “self-proving affidavits”. In such instances, it can be time consuming and expensive to locate out-of-state witnesses to those wills. The same is often true with regard to Wills (even those executed in New York) that are unusually old. You should also be aware of the fact that generally speaking only the original Will may be admitted to Court. The absence of an original Will creates a presumption that the original was destroyed with the intent to revoke it. A copy of a Will may on occasion be admitted to probate, but sufficient facts must be introduced in Court to prove that the original was lost or destroyed without intent to revoke.
How Can an Estate Plan Help?
Regardless of your age, or the size and complexity of your estate, an estate plan can accomplish the following:
- Identify the family members and other loved ones that you wish to receive your property after your death.
- Ensure that your property will be transferred to those you have identified, as quickly and with as few legal hurdles as possible.
- Minimize the amount of taxes that will need to be paid in order for your property to pass to others after your death.
- Avoid the time and costs associated with the probate process by utilizing estate planning devices like living trusts and “payable on death” bank accounts.
- Dictate the kinds of life-prolonging medical care you wish to receive should you be unable to make your wishes known when the time comes.
- Set forth the kind of funeral arrangements you would like, and how related expenses are to be paid.
How Can an Estate Plan Distribute My Property Quickly and Inexpensively?
A proper estate plan can help to keep the cost of transferring property to beneficiaries as low as possible. This may involve the formation of a trust, the re-titling of assets or correcting the beneficiary designation on certain assets. It also may involve the choosing of a competent administrator for your estate and giving him or her the necessary authority to carry out your directives.
What Additional Documents are Recommended?
It may be simply repeating the obvious, but it should be stressed that a Will is only effective in the event of death. A Will has absolutely no effect in the event that an individual is sick or injured to the point of incapacity. In such event, it is wise to have the following documents in place: a Durable Power of Attorney, a Designation of Health Care Surrogate and a Living Will. Each of these documents is summarized below.
Durable Power of Attorney
This document is intended to allow another person, referred to as an attorney-in-fact, to make financial decisions and execute legal documents on your behalf. Typically, the attorney-in-fact acts when the principal is unable to act for one reason or another. The benefit of this document is that it can provide a simple and inexpensive alternative to a lengthy guardianship process in the event that a person is ever incapable of making financial decisions for himself or herself.
Designation of Health Care Surrogate
This document is intended to apply in the event that an individual is ever unable to make a health care decision for himself or herself. In such event, another person, referred to as a surrogate, would be called upon to make health care decisions for him or her. The health care decisions which the surrogate can make are rather broad in scope. They may involve the choice of medical procedures and providers, including the right to transfer an individual from one health care facility to another. The surrogate also has the power to apply for all insurance benefits, both public and private, that are available to an individual. This document can be a simple and effective alternative to the creation of a guardianship in the event that someone is ever incapacitated to the extent that he or she cannot make an informed medical decision.
This document, commonly referred to as the “pull the plug” document, provides authorization to terminate life-prolonging procedures in the event that an individual is ever diagnosed with a terminal illness and his or her life is being artificially prolonged by a life support system. In such a situation, the attending physician and a second consulting physician would have to agree that an individual suffers from a condition from which there is no medical probability of recovery and that death is imminent. Even when two doctors agree that an individual is suffering from such a condition, the doctors must still obtain the approval of the health care surrogate before they proceed to discontinue the use of any life support system. In certain Living Will documents, an individual is asked to specify those life-prolonging procedures that he or she wishes to have discontinued. For example, if an individual is being kept alive by a feeding tube, should that feeding tube be considered a life-prolonging procedure?
Federal Estate and Gift Taxes
Historically speaking, the federal estate tax is an excise tax levied on the transfer of a person’s assets after death. In actuality, it is neither a death tax nor an inheritance tax, but more accurately a transfer tax. There are three distinct aspects to federal estate taxes that comprise what is called the Unified Transfer Tax: Estate Taxes, Gift Taxes, and Generation- Skipping Transfer Taxes. Legal planning to avoid or minimize federal estate taxes is both a prudent and an important aspect of comprehensive estate planning.
The latest iteration of the federal estate tax is the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. It was the most sweeping change to tax law since the 1986 Tax Reform Act. Most of its provisions are set to sunset in 2025, which will be here before we know it.
The SECURE Act (Setting Every Community Up for Retirement Enhancement Act), signed on December 20, 2019, has led to big changes in retirement savings, from the elimination of the IRA “stretch” for most non-spousal beneficiaries to extending the time for seniors to save for retirement and to start taking Minimum Required Withdrawals from IRAs, SEPs and other retirement accounts.
You may have questions about the impact that the new estate tax laws have on your overall estate plan. If your estate plan includes a substantial IRA, chances are you need to at least review your will, and most likely, to revise your estate plan to protect your retirement accounts and beneficiaries.
Call my office at 516-307-1236 for a free telephone consultation to discuss whether your intentions will still be carried out under the new laws.
How much does Estate Planning cost?
This obvious answer is that it depends. Obviously, the cost to plan a $10 million estate is generally going to be greater than the cost to plan a $1 million estate. In addition, those people who have complex family situations, such as where one or both spouses have been married several times, will incur more costs than those people who have a relatively stable family life. You should feel free to ask about fees at your first consultation. It is entirely permissible to inquire about how much your total estate plan might cost.