ESTATE PLANNING

Estate Planning & Wills

Everyone should have a last will and testament tailored to their specific situation. If you pass away without leaving a will designating an executor, you have died intestate, and your assets will be distributed in accordance with New York law. The distribution of your estate among your living relatives will then be determined by their relationship to you and by the intestate succession laws of New York.

Types of Wills

Wills can be divided into four main categories: living wills, testamentary trusts, simple wills, and joint wills. Every type has a specific purpose and is designed to address unique demands and circumstances.

Simple Will

The most common type of will is the simple will. Simple wills specify how you want your assets handled, how and where they should be distributed, and usually name an executor or trustee to manage your estate. Your executor will be in charge of carrying out the instructions in your will, filing the required court documents to begin the probate process, handling particulars like notifying banks and government agencies of your passing, and filing your final tax returns. When the estate administration process is completed, your executor will oversee collecting and distributing your property.

Testamentary Trust Will

A testamentary trust is a specification in your last will and testament that instructs the executor of your estate to create the trust. After your death, your will proceeds through the probate process to determine its validity. Once the probate process is complete, the trust becomes active, and your executor transfers the assets into the testamentary trust. It is important to note that more than one testamentary trust can be included in your last will and testament.

Joint Will

Joint wills are created by two or more people and include separate wills for each individual. They are most commonly used by couples who want to name each other as the sole beneficiaries of their estate. In the case of a joint will, the couple writes two nearly identical wills, each naming the other as the sole beneficiary. Once created, these wills cannot be changed, making them problematic if either person's wishes change or the couple divorces.

Living Will

Living wills are written to provide legal instructions about your preferences for medical care if you are unable to make decisions for yourself. Drafting a Living Will can help ensure that you get the medical care you want, and assist caregivers in the decision-making process. Illness and end-of-life situations can happen at any age, not just to the elderly, therefore everyone should have a living will.

We can assist you in selecting the ideal will type for your circumstances and guarantee the validity of your document. We can make sure that your living will or last will and testament takes into account all the important details to make the probate process go more smoothly.

A trust fund is a legal entity designed to hold property or assets for another person, group, or organization. Trust funds are managed by a neutral third party called the trustee, and can hold various assets such as property, money, or stocks.

Trust funds can be powerful estate planning tools presenting many advantages. Depending on the type of trust established, it can be used for a range of purposes, including:

Reducing estate taxes; Reducing gift taxes; Ensuring children and grandchildren under 18 will be beneficiaries of an estate; Safeguarding the financial future of family members with special needs; Protecting assets from lawsuits; Protecting assets from creditors

How Does A Trust Fund Work?

Trusts generally involve three parties, the grantor, the beneficiary, and the trustee.  The grantor is the person who is creating the trust, contributes the assets, and determines how the trust should be managed. There are different types of trusts that can be created, including revocable and irrevocable trusts.

How the trust fund will work depends on the type of trust the grantor has created and the rules they have specified. The beneficiary is the individual, group, or organization the trust fund has been established for. The trustee is a neutral third party entrusted to manage the trust.

Living Trust

A living trust is a legal document established during an individual’s lifetime where an appointed person, called the trustee, is tasked with managing that individual’s assets for the benefit of the named beneficiaries.

What is the Main Benefit of a Living Trust?

The main benefit of creating a living trust is to avoid probate. During probate assets are transferred out of the deceased person’s name into the name of the living. If the deceased left a valid Will, all relevant estate parties are notified, all estate property is identified and appraised, and creditors and taxes are paid. When all these items are completed, the court issues an Order distributing the property, and the estate is closed.

Unlike a valid Will, which helps move things more easily through probate, a living trust does not require probate. The living trust allows individuals to put their property and assets into a trust while they are alive and then transfer them upon their death, to their designated beneficiaries, effectively avoiding the probate process.

Testamentary Trust

A testamentary trust is a specification in your last will and testament that instructs the executor of your estate to create the trust. After your death, your will proceeds through the probate process to determine its validity. Once the probate process is complete, the trust becomes active and your executor transfers the assets into the testamentary trust. It is important to note that more than one testamentary trust can be included in your last will and testament.

Typically, testamentary trusts are established for young children, relatives with disabilities, or other beneficiaries set to inherit a large sum of money from an estate. Testamentary trusts generally have low upfront costs and can be funded with life insurance proceeds after you die. They may also be used to reduce estate tax liabilities and can ensure the proper management of your assets after your death. Unlike other trusts, you can continue to make changes and the assets will remain in your control, until after your death when the trust takes effect.

When you create your testamentary trust, you can include specifications for when the trust will terminate, and your beneficiaries receive control of their trust allocations. Until then, the trust remains active and your designated trustee will continue to manage the assets. During the active period of the trust, the probate court may conduct periodic reviews to ensure that the trust is managed properly.

A last will and testament that includes a testamentary trust may be contested during the probate process. Therefore, if you are considering creating a testamentary trust or have questions about one, you should seek the advice of an experienced estate attorney.

Credit Shelter Trust

Irrevocable trusts can be attractive legal vehicles for the affluent when leaving assets to their children. Property in an irrevocable trust is not included in calculations of the total value of the property at the time of death and is generally protected from creditors and other claimants. One type of irrevocable trust designed to reduce and sometimes completely avoid estate taxes is the Credit Shelter Trust, also known as an AB trust or Bypass trust.

Credit Shelter Trust

When a married individual dies, a credit shelter trust can be created. The credit shelter trust will be funded according to the trust agreement, with either their entire estate or just a part of it. Once created, the trust will effectively transfer the deceased’s assets to the surviving spouse. However, this transfer does not increase the surviving spouse’s taxable estate because the surviving spouse does not actually take control of the trust’s assets, and the trust is managed by a designated trustee. The surviving spouse does maintain specific rights to the assets in the trust for the remainder of their life. When the surviving spouse dies, the assets in the trust are then transferred to the remaining beneficiaries without any imposed taxes.

Marital Trust

Estate Taxes and Marital Trusts

When someone dies, any assets left for beneficiaries may be subject to estate taxes. The “taxable estate” amount is the final value of the estate that is subject to the estate tax. The federal estate tax can be as high as 40% of the inheritance amount.  Reducing estate taxes is a common reason for and a common benefit of comprehensive estate planning. One estate planning tool used to reduce estate taxes are marital trusts. Marital trusts reduce estate taxes by taking advantage of the marital deduction and the unified credit.

The Marital Deduction and The Unified Tax Credit

The 2018 estate and gift tax exemption is $5.6 million per individual, meaning an individual can leave $5.6 million to heirs and pay no federal estate or gift tax. Married couples can now shelter $11.2 million from federal estate and gift taxes, and the annual gift exclusion amount has been increased to $15,000.

The marital deduction reduces an individual’s “taxable estate” by the value of all assets an individual transfers to their spouse at death. The unified tax credit acts as an additional exemption to reduce the value of an estate. The unified tax credit has a fixed amount that an individual can gift during his or her lifetime before any estate or gift taxes apply. The 2018 federal tax law applies the estate tax to any amount above $10 million.

How the Marital Trust Works

The marital deduction is only available for assets left to a surviving spouse. When a spouse is named as the sole beneficiary, it eliminates the possibility of other family members receiving the assets and losing the marital deduction on the estate tax return. The marital trust enables married couples to pass unlimited amounts of assets to each other, without any gift tax or estate tax implications. The marital deduction will apply to all the property placed inside the marital trust.

Inheritance Trust

New York Inheritance Law

One of the first steps in estate planning is to write a thorough Last Will and Testament so that you can direct what happens to your estate after you pass. Your will should be customized to your individual situation and should consider important factors such as current estate taxes. insurance issues, and other aspects that will help move things easily through the probate process.

Children Under the Age of 18

Do you have children under the age of 18 that you want to leave assets to in your will? New York inheritance law prohibits a child under the age of 18 from directly inheriting and taking control over money and property. If your estate planning does not include provisions to make sure that money and property is appropriately managed on behalf of the child, the court will appoint a guardian for those funds. Even if the child is not a minor, they might not be mature enough to take total possession and control of an inheritance. Creating an inheritance trust can address this situation.

Using Inheritance Trusts

In the case of minor children, inheritance trusts provide that the child’s inheritance will be maintained in the trust and distributed based on the terms of the trust. Close family members often serve as trustees and can use their discretion to distribute the assets of the trust to or for the benefit of the child for any reason. For adult children, inheritance trusts provide that, while your children are alive, they have complete access to the income and the principal of their Inheritance. When your child dies, if there are unused estate assets, they may be directed to your grandchildren instead of in-laws or others. If one of your children dies without leaving children of their own, then the trust funds go to their surviving brothers and sisters.

Revocable and Irrevocable Medicaid Trust

Revocable and irrevocable Medicaid trusts are two of the most common trusts designed to protect your property, save on estate taxes, and help you avoid probate.  If you’re not familiar with the difference between these two trusts, you can read about them in our previous post here. While both these trusts have their advantages and disadvantages, in this post we’ll focus on the disadvantages of using an irrevocable Medicaid trust.

You Lose Control Over Your Assets

The obvious disadvantage of transferring assets to an irrevocable trust is that you lose control over the trust’s assets. You no longer have any legal right to make decisions about those assets, and you may not receive any income generated from them. Tackling the high costs of long-term health care can also be accomplished by acquiring long-term health care insurance coverage. Long-term health care insurance can help to pay for the costs of home health and nursing home care while maintaining your assets.  If you cannot obtain or afford coverage, then creating an irrevocable Medicaid trust, or a combination of both may be your best option.

You Can’t Make Changes

An irrevocable trust generally cannot be changed, amended, or modified after the agreement has been signed. A binding court order is necessary for an irrevocable trust to be changed or ended. However, this is a complicated process and approval for this court order can be difficult.

Your Application for Medicaid Will Have to Wait

Medicaid has a five-year “look back” period, during which time any transfers you make, including to an irrevocable trust, will result in a “transfer penalty”. Thus, you generally cannot fund an irrevocable trust and apply for Medicaid immediately.

Life Insurance Rules

If you create and transfer a life insurance policy into your trust, it’s with the assumption that you will live at least three more years. Should you pass away within three years of finalizing your irrevocable trust, the proceeds will return to your estate and be subject to taxes.

When creating a trust there are many options and variations to address each person’s situation and needs. However, we have created a basic checklist to guide you through the process of creating a trust document.

Checklist for Creating a Living Trust

Create A List of Assets to Include in Your Trust

While you do not have to include all your assets in the trust, keep in mind that only assets included in the trust will be able to pass to your beneficiaries without going through probate. Types of assets that can be included in your trust include:

Real estate; Stocks; Personal property such as jewelry and furniture; Bank accounts

Collect and Organize Necessary Paperwork

To save time and ensure the process of funding your trust goes efficiently, collect and organize all necessary documents for the assets you plan to include in trust. Paperwork needed may include: Titles; Deeds; Account Numbers; Stock Certificates

Do You Need a Shared Trust or An Individual Trust?

Since you can only transfer property that you own into a trust, if you are married and own property jointly, you will likely need to consider a shared trust. Although you could form two separate trusts, joint trusts can make your estate planning much easier.

Choose Your Beneficiaries

A trust's beneficiary is the person who will one day receive trust assets or benefit from the trust in some other way. Family members, loved ones, friends, and even charities can be named as trust beneficiaries. In addition to choosing your beneficiaries, also consider how you would like assets in the trust distributed, and any special provisions such as limiting a beneficiary’s spending or disbursing assets to certain beneficiaries over a period rather than all at once.

Choose Your Successor Trustee

A trust’s successor trustee is the person tasked with overseeing your affairs should you become incapacitated or settling any estate debts and distributing assets according to your terms, after your death. If a minor child might inherit assets from your trust, you can also choose someone to manage those assets for them.

Prepare the Trust Agreement

A trust agreement is the legal document that establishes the trust. Trusts must be well-planned and designed carefully to reduce the amount of taxes on their distributions. Trust law varies by state and can be very complicated. An experienced trust attorney can help you determine the type of trust you need, carefully structure it to meet the needs and goals of your individual situation and draw up the necessary documents including the trust agreement. Although there are do-it-yourself trusts available online, be aware they often do not offer legal advice and sometimes do not take into consideration changes in estate planning laws. Further, they often neglect areas such as guardianship of children, property that has appreciated in value, or large estates that are subject to estate taxes.

Funding the Trust

Once the trust has been created, assets can then be transferred from the grantor’s name or joint names, into the ownership of the trust. When the grantor funds the trust, it ensures their assets will be managed according to the terms of the trust agreement.

How a trust is funded depends on the type of property in question. Generally, for titled property such as vehicles, the grantor may request a new title showing the living trust as the owner. For untitled property, an Assignment of Property document may be used to specify the trust as the owner.

Assets that can be used to fund a trust include:

Financial Accounts; Real Estate; Beneficiary Accounts

Keep Your Living Trust Current

A living trust is a part of your estate plan and should be reviewed and updated frequently, to ensure that major life events such as deaths, marriages, and divorces, as well as purchases of property and sales are addressed properly in your trust.

Power of attorney is a legal document where you appoint an agent to act on your behalf.  This is one of the most basic and most powerful estate planning tools.

It should only be entrusted to a person or persons who you can trust will appropriately exercise discretion and act in your best interests, especially when you may not be able to adequately fight for yourself. Your agent will be your fiduciary under the law and be subject to duties beyond that of an ordinary person when it comes to handling your affairs.

Every client’s situation and needs are different, and when creating a Power of Attorney, there are many options and variations.  We can assist you in determining your exact needs for obtaining a New York power of attorney. 

While there are free forms available online, know that the standard form does not grant a few specific powers that could be very important if your designated person did need to use power of attorney, such as accessing a safe deposit box or setting up a trust.

People who handle another person's assets or property are known as fiduciaries. All fiduciaries, including executors, trustees, and agents under powers of attorney, are obligated to conduct themselves honestly and in accordance with the law. Fiduciaries must also act in the best interests of the trust or will in accordance with its terms, as well as collect and protect estate assets.

Breach of Fiduciary Duty

A breach of fiduciary duty occurs when one party fails to act in the best interests of another. Cases involving breach of fiduciary duty frequently arise when it appears that a third party is withholding assets from a decedent's estate. These assets may include bank accounts, stocks, property, and retirement accounts. It is the fiduciary's responsibility to pursue the recovery of the property or its value, and when there is doubt about whether a fiduciary acted appropriately, a beneficiary or other interested party may file an action against that fiduciary. In these cases, the Surrogate's Court Procedure Act establishes a statutory procedure for recovering estate property.

SCPA 2103 Discovery Proceedings

New York Consolidated Laws, Surrogate's Court Procedure Act - SCP § 2103 allows estate representatives to conduct extensive discovery to gather information about potential estate assets and to pursue a hearing or trial for the return of the property. According to SCPA 2103 SCPA §2103(2) sets forth the property that can be sought:

“Any and all personal or real property in which decedent had any interest, including choses in action, money deposited and all property rights of the depositor consequent on the deposit of money by a decedent, grantor or fiduciary or for his account with any authorized banking organization in respect of which the depositary claims no beneficial interest other than its proper costs, fees or expenses.”

An SCPA 2103 discovery proceeding is used in New York to discover assets in an estate and can be initiated against anyone who has “possession, control, knowledge, or information” about assets held in the estate.

A SCPA 2103 procedure has two phases: the discovery phase and the turnover phase. The purpose of the discovery process is to find out who took the property and get it returned to the estate. These proceedings can have a broad scope. Instead of proving beyond a reasonable doubt that the person in question has stolen the assets, the complainant need only show the court that the person in question: has the assets, knows where the assets are, or believes the person knows where the assets are. The discovery proceeding may be converted into a turnover proceeding (phase 2) if, after examination, the complainant still believes the individual in question is in possession of the assets.

It should be noted that when a beneficiary is involved, it is frequently more efficient to compel an accounting rather than initiate a SCPA 2103 discovery procedure. Beneficiaries or other interested parties have the right to force the executor/trustee to provide an accounting of all the financial details of the estate. An accounting, if Ordered by the Court to be provided, must comply with the rules and requirements set forth under New York State Law. The accounting gives precise information on the assets that were in the decedent's estate at the time of their death. The estate accounting will often also detail any new property that has been added to the estate since the decedent passed away, how the estate funds were used, what property is still in the estate at the time the accounting is completed, and what will be done with the remaining assets.

Locating and recovering estate assets can be challenging. Financial transactions, missing or ambiguous documents, and concealed assets can all make it difficult to determine who owns what. In these types of cases, particularly when an executor may be attempting to conceal certain financial facts from the beneficiaries, clients in New York benefit greatly from competent knowledgeable counsel in this subject area.

Your will and trust(s) need to include details that go into effect if you become disabled for any reason. Without a plan that covers incapacity, a court may appoint somebody to oversee your personal and financial needs.

Planning can allow you to choose who will help you, provide them with guidance, and impose limits or grant more than what a court might allow.

A durable power of attorney names the person who can help you with your financial affairs or manage them for you.

A healthcare proxy names the person who will help you with decisions about your medical care or make those decisions for you based on your instructions.

A living will tells your family and your doctors what type of medical treatment you want during your final days of life.

Do I Really Need An Estate Planning Attorney?

Anyone can benefit from creating a legally sound estate plan with help from an experienced estate planning attorney. From bank accounts to vehicles and personal belongings, everyone has an “estate” that is comprised of everything they own and control. From your personal health care decisions, to protecting your assets from long-term skilled nursing care costs, to leaving instructions for the benefit of minor children, to managing complex financial assets, to tax planning for future generations, if you pass away without leaving specific instructions regarding your assets, properties, and health, someone else (and possibly the courts) will have to make these decisions for you. By having a proper estate plan, you have greater control over what happens to your estate and will provide your loved ones with more reassurance and peace of mind when they need to handle your affairs.

Do I Need A Power of Attorney?

Yes, you need a “power of attorney” document. Powers of Attorney are one of the most basic but most important estate planning tools is the appointing of an agent to act on your behalf.

Can I Use The Free Power of Attorney Form?

While this form is available online, know that the standard form does not grant a few specific powers that could be very important if your designated person did need to use power of attorney, such as accessing a safe deposit box or setting up a trust.

When Should I Contact An Estate Planning Attorney?

There are many reasons to contact an experienced estate planning attorney, here are just a few:

If you can’t decide how to divide your assets; If you want to make special provisions in your will; If you have detailed requirements about how your estate should be handled after your death; If you want to specify individual possessions in your will.

What is The Best Way to Provide for Special Needs Individuals?

Leaving an inheritance to care for a special needs child may disqualify them from Medicaid or other government programs. We can help you set up a special needs trust, to provide for your child in the best way possible, after your death.

How Can I Help My Parent With Long-Term Planning?

Sick or elderly parents don’t always qualify for Medicaid because of income or assets. Medicaid provides benefits to the elderly and sick, including at-home care, and without this help, costs can be very expensive. We can assist with arranging your parent’s finances to help them qualify for Medicaid.

What Should I Do About Estate Tax?

If you qualify for the estate tax we can help organize your assets and ensure that your family—not the government—inherit as much as possible.

How Much Does Estate Planning Cost?

Every client’s situation and needs are different. Some cases are simple and some are complex. Our free consultation is designed to assist us and you in determining your exact needs for obtaining a New York Power of Attorney. Fattore Law offers multiple payment arrangements customized to the individual’s legal needs.