Estates, Wills & Trusts
Who needs estate planning?
Estate planning is just as important for younger adults as it is for older people. Indeed, younger families should be particularly vigilant so that unexpected misfortunes do not threaten the security of minor children. An estate plan ensures that personal wishes are honored. Given its importance, the plan should change with each significant family event such as births, marriages, divorces, deaths and home purchases. At minimum, a proper plan should incorporate a Last Will and Testament, guardianship for minor children, consideration for beneficiaries with special needs, insurance, investments, durable powers of attorney, and healthcare directives. A well-drafted estate plan saves tax, court, and attorney costs. More importantly, mourning loved ones will not be burdened by unnecessary “red tape” and financial confusion. Without careful estate planning, your beneficiaries may not receive their intended inheritance. This is especially true for individuals who are not part of a “typical” nuclear family. Increasingly, children are being raised by single parents, lesbian and gay parents, or grandparents.
What kind of estate plan is needed?
Understanding the estate plan options that are right for you can be a complex undertaking. The management and transfer of property without estate planning documents can end up with the wrong person managing your assets and possibly your assets being distributed to beneficiaries you did not choose. An effective estate plan should be customized to your needs, rather than offered as a one-size-fits-all solution. The Estate Planning Group at Michael Sullivan & Associates can help you identify your estate planning needs, recognize potential solutions and work with you throughout every step of the estate planning process. Our team will take time to understand your needs. We are experienced in the legal mechanics required to draft your estate plan, help you avoid probate, carry out your wishes and protect your assets.
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.
What services are offered?
It is critical to make sure that your estate planning documents are prepared and implemented correctly.
LAST WILL AND TESTAMENT (WILL)
You have worked hard to build your estate and a properly written Will ensures that your wishes are respected concerning its distribution.
- Your Will directs where, and to whom, your estate (what you own) will go after your death. If you die intestate (without a Will), your estate will be distributed according to the laws of New York State. This statutory mandated distribution may not be in accordance with your wishes.
- Many people try to avoid probate and the need for a Will by holding their property jointly with their children. Although doing so can achieve that end, oftentimes people spend unnecessary effort trying to make sure all that the joint accounts remain equally distributed among their children who they wish to inherit. However, these efforts can be defeated by a long-term illness of the parent, reducing the amount in certain accounts but not, creating an unequal distribution of the parent’s estate. The death of a child can cause similar inequities. Holding one’s property in jointly held accounts simply to avoid probate has too many unforeseen risks which can cause inequities in the final distribution of the estate and subsequently not reflecting the person’s wishes. A Will is a much simpler and safer means of protecting one’s wishes regarding the distribution of assets.
- Another reason to have a Will is to ensure that the administration of your estate will be a smooth process. Oftentimes the probate process can be completed more quickly and at less expense to your estate if there is a Will. With a clear expression of your wishes, there are unlikely to be any costly, time-consuming disputes over who gets what.
- In addition, a Will allows you to choose the person you wish to administer your estate and distribute it according to your instructions. This person is called your “Executor.” If you do not have a Will naming a person of your choice, a person will have to petition the court to be appointed the Administrator of your estate, and it may not be a person you want to serve.
- A Will also allows you to appoint the person who will take your place as guardian of your minor children should you and their other parent pass away.
- A Will covers only probate property, which is property held in your sole name with no designated beneficiaries. Many types of property or forms of ownership pass outside of probate. Jointly-owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate.
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property held for another person called a “beneficiary.” The rules or instructions under which the trustee operates are set forth in the trust document. Trusts sometimes have one set of beneficiaries during the life of the grantor (the person who creates the trust) and a second set — often the grantor’s children — who begin to benefit only after the first group has died.
TYPICAL USES FOR TRUSTS
There can be several advantages to establishing a trust. One primary advantage is to avoid probate. In a revocable trust, at the death of the grantor, any property remaining in the trust at the grantor’s death generally passes immediately to the beneficiaries after payment of debts and taxes, pursuant to the terms of the trust without requiring probate. This can save time and money for the beneficiaries.
Certain trusts can also result in tax advantages both for the grantor and the beneficiary. These are often referred to as “credit shelter,” “life insurance” or Crummey trusts. Other trusts may be used to protect property from creditors or to help the grantor qualify for Medicaid. Unlike Wills, trusts are private documents and usually only those individuals with a direct interest in the trust need to know of the trust assets and its distribution. Provided they are well-drafted, another advantage of a trust is that it remains effective if the grantor dies or becomes incapacitated.
KINDS OF TRUSTS
Trusts fall into two basic categories: testamentary or inter vivos.
A testamentary trust is one created by your Will. It does not come into existence until the testator (the person whose Will it is) dies. An inter vivos trust is one created and in effect during the grantor’s lifetime.
There are two kinds of inter vivos trusts: revocable and irrevocable.
• Revocable Trusts
Revocable trusts are often referred to as “living” trusts. With a revocable trust, the grantor retains complete control over the trust and may amend, revoke or terminate the trust at any time. This means at any time that the grantor can take back the funds he put in the trust or change the terms of the trust at any time. Thus, the grantor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to his death.
Revocable trusts are generally used for the following purposes:
- Asset management. They permit the named trustee to administer and invest the trust property for the benefit of one or more beneficiaries.
- Asset Protection. A trust allows the trustor to protect the trust property being left to a beneficiary from the threats of bankruptcy, lawsuit, and divorce. It also permits those inheriting to qualify for public benefits if needed without spending down the inheritance and make sure that if a child dies, the inheritance passes to the grandchildren, no matter who the surviving spouse marries next.
- Probate avoidance. At the death of the person who created the trust, the “grantor” or “donor,” the trust property passes to trust beneficiaries. It generally does not come under the supervision of the probate court and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the grantor’s estate for tax purposes.
- Tax planning. While the assets of a revocable trust will be included in the grantor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when the beneficiaries die.
An irrevocable trust cannot be changed or amended by the grantor. Any property placed into the trust may only be distributed by the trustee as provided for in the trust document itself. For instance, the grantor may establish a trust under which he will receive the income earned on the trust property but bars his access to the trust principal. This type of irrevocable trust is a popular tool for Medicaid planning.
SUPPLEMENTAL NEEDS TRUST
A Supplemental Needs Trust (also referred to as a Special Needs Trust) is a discretionary spendthrift trust created for a person who is elderly or has a disability as a way to supplement the person’s public benefits. These public benefits may include SSI, Medicaid, Section 8 housing, and other federally- or state-sponsored assistance programs. A Supplemental Needs Trust can be created through a testamentary trust or inter vivos trust.
POWER OF ATTORNEY (POA)
The Durable Power of Attorney (POA) is one of the most important estate planning devices available. A POA allows the person you appoint your to act in your stead for financial purposes as soon as it is executed. It is particularly useful when, and if, you ever become incapacitated. The person you appoint to exercise the power of attorney will be able to step in and take care of your financial affairs. Without a Durable POA, no one can represent you with regard to your financial affairs unless a court appoints a guardian. This court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship, your representative may need to seek court permission to initiate planning measures that he could implement immediately with the use of a simple Durable POA
A POA may be limited or general. A limited POA gives the person you’ve appointed specific powers. For example, you can give an individual the right to sign checks on your behalf. A general POA is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself. A Power of Attorney may also be either current or “springing.” Most POAs take effect immediately upon their execution, even if the understanding is that they will not be used until, and unless, the principal (person who is signing the POA) becomes incapacitated. However, the document can also be drafted so that it does not become effective until mental incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the POA be clearly articulated in the document itself.
ADVANCED HEALTH CARE DIRECTIVE
Any complete estate plans should include a medical directive. In our current world, the COVID-19 health crisis has made this painfully clear. A Health Care Directive is a legal document in which a person specifies what actions should be taken for their health if they are no longer able to make decisions for themselves because of illness or incapacity.
We live in a constantly changing world. In order to secure peace of mind, avoid the exorbitant cost of probate and ensure that your family is protected, an estate plan is needed. We are here to help you achieve your goals.