People have worked a lifetime to accumulate assets. And sometimes their transfer is not so straight forward, or their family dynamic is complex. The first question of estate planning is “what’ve you got?” The second is “what would you like to do with it?” And the third to round out a top-level discussion is “what’s your worst-case scenario?”
Estate planning is the process of creating a customized asset transfer strategy which contemplates all contingencies. Having a sound plan in place ahead of time can provide peace of mind now, and save your loved ones from heartache and aggravation down the road.
There are several commonly implemented estate planning strategies. Determining which one is appropriate for you normally begins with a conversation like the one above.
Estate Planning with Wills
A Will, what is it? A will is a binding and legal document authorizing someone (or some entity) with the task of distributing your assets upon death. It’s a private document which becomes public when filed with the Surrogate’s Court in the county where the Deceased is domiciled. (For 25 cents a page you can go down to New York County Surrogate’s Court and print Joan Rivers’ Will). The process of validating a will with the Surrogate’s Court is called probate.
- Who’s in charge? A will states who’ll be the executor – the person in charge of the estate. It can also state who’ll be the guardians for minor children, or who’ll be the trustees if there’s provisions within the will to create a trust upon a person’s death.
- Who gets what? A will states who’ll get the family heirloom broach, or the condo in Naples, Florida. It may also describe how anything else remaining, called the residuary, is left to St. Jude’s Children’s Research Hospital.
It can be used for tax planning. Wills can redirect assets into appropriate trusts to avoid taxes at the federal and state level.
Estate Planning with Trusts
A Trust, what is it? Contrary to popular belief, a trust is an estate planning tool available to everybody, and not just the people on Dynasty. Trusts are an agreement where one party is the custodian of property for the benefit of another party. There are normally three actors with respect to trust planning: (1) The Grantor – or trust creator whose assets fund the trust, (2) The Trustee – the custodian, and (3) The Beneficiary – the other party for whom the benefit is created. (At one point in creating a revocable living trust, one person actually wears all three hats at once).
Trusts can be created and funded while you are alive, or they can be created by will. The can be revocable, meaning they can completely unwound, or irrevocable, where they’re permanent – but there are some exceptions for unwinding an irrevocable trust too.
Four Ways Trust Planning is Distinguished from Wills:
- Wills take effect only upon death – there’s no plan for a disability
- Wills have to go through probate to settle – trusts do not
- Wills are typically single-generation planning
- Wills do nothing to protect your assets from a nursing home situation
There are many types of trusts. Here are some examples of ones which I prepare regularly for clients:
Revocable Living Trusts – This is a common estate planning took used to avoid the expense and delay of putting a will through probate. In this case, the trust creator wears all three hats of Grantor, Trustee and Beneficiary. All of your assets are retitled into the name of the trust while you are alive. Upon your death, the trust acts as a will to distribute your assets. The successor trustee whom you have appointed takes on a similar role of an executor in carry out your final wishes. There is no court involvement to validate the trust, transfer power to the successor trustee, or distribute assets. There are more up-front expenses in the creation trusts, but to some people, when applying a costs-benefits analysis to probate with wills down the road (2 probates for married couples), they find the investment of time and money well worth it.
Irrevocable Trusts – This trust planning is appropriate for persons seeking to remove assets from their names individually, while still enjoying their use and benefits during their lifetime. There are a several reasons for doing so, including reducing assets for estate tax purposes, and for protecting assets from a nursing home situation. That is, without long-term care insurance or a plan in place, your asset are subject to a claim for nursing home payments if you suddenly had to enter into a nursing home. There are stringent guidelines and timeframes for such trust planning. And unlike revocable trusts, irrevocable trusts require different actors to satisfy each role – not just one person wearing all three hats.
Irrevocable Life Insurance Trusts – These are irrevocable trusts that own a person’s life insurance policy. These trusts remain virtually unfunded while their creator is alive. Upon the creator’s death, the trusts are funded with the death benefit from the creator’s life insurance policy. The trustee then administers the trust pursuant to the creator’s instructions.
Martial Trusts – This tax planning strategy by way of wills is useful for spouses to protect against the ever-changing landscape of estate tax exemptions. This strategy is also useful in Brady Bunch or blended family scenarios, where a parent with children from a previous relationship seeks to allow the surviving spouse to enjoy the use and benefit of an asset during her lifetime, and then to pass to his children upon the surviving spouse’s death.
Trusts for Minors – Children and grandchildren are often contemplated in estate plans. A custodial arrangement is necessary for a minor child to receive an inheritance. Guidelines may be established for the systematic distribution of assets either by age or by merit.
Special Needs Trusts – Trust assets may be isolated so that a beneficiary with special needs will remain eligible to receive government benefits.
Spendthrift Trusts – Beneficiaries sometimes need protection from themselves or from known creditors. A third-party trustee can insulate a beneficiary against creditor claims or impulse spending.
Pet Trusts – Leona Helmsley famously left $12 million to her dog, Trouble. Lesser heeled persons may also provide both short and long-term provisions for the custody and support of their pets.
Power of Attorney
This document authorizes a third-party to make legal and financial decisions on your behalf if you become disabled or incapacitated – specifically, including signing checks on your behalf or selling your property. This is a very powerful document. Your agent can do practically everything for you except vote.
Health Care Proxy
This authority is similar to an agent under power of attorney, but tailored to health care decisions in your behalf, and access medical records in the event of disability or incapacity.
A misnomer in name. Your “Do Not Resuscitate” order not to prolong life by artificial means when expert medical opinions conclude that you are terminally ill and beyond recovery. That is, “remove me from the iron lung when there is no brain activity.” A useful document in shifting the burden from loved ones when confronted with such an agonizing decision.
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Law Offices of Paolo Conte PLLC
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Mount Kisco, NY 10549
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