WHAT IS ESTATE PLANNING?
Estate planning involves much more than simply deciding who will get your money when you die. When done properly, estate planning results in a comprehensive plan that addresses not only the distribution of your assets both during life and at death, but also addresses questions such as who will make health care decisions for you if you are unable to do so, what will happen to your business if you become incapacitated, who will care for your children if you & your spouse die prematurely, how will you pay for long term care and who will protect your adult disabled child. In addition, estate planning may enable you to minimize estate taxes and to avoid disputes over your property and your care. Everyone should engage in estate planning because having properly prepared estate planning documents is the only way to insure that your wishes concerning everything from whether you receive certain medical treatment to whether your assets will be used to pay for your grandchild’s education are honored. Estate planning documents can include wills, trusts, living wills, healthcare proxies, powers of attorney, living trusts and pre- and post-nuptial agreements. Because of the complexity of the law, you should retain an attorney to help you identify your estate planning goals to explain different options and strategies available to meet those goals and to prepare and supervise the execution of the documents needed to realize those goals.
WHO NEEDS A WILL?
Quite simply, everyone does! Whether you are married or single, have hundreds of thousands of dollars to pass on to your loved ones or a much more modest estate, you need a will to insure that your property passes to those you care about according to your wishes. While your property will be distributed to your family members if you die intestate (without a will), New York State law will dictate what percentage of your estate goes to each person depending on how they are related to you. For example, your spouse will receive the bulk of your estate and your children will each receive an equal share of your estate, regardless of need. The law does not take into consideration whether you previously gave one of your children an advance on their inheritance in the form of a large monetary gift, whether you are estranged from one of your children or whether anyone in your family has special needs. Finally, the law does not provide for close friends or charitable organizations that may have been important to you during your lifetime. The only way to insure that your wishes are honored with respect to the distribution of your assets is to memorialize those wishes in a properly drafted and executed will.
DO I NEED A WILL IF I WANT ALL OF MY PROPERTY TO GO TO MY SPOUSE AND MY CHILDREN? While everyone needs a will, the importance of having a will is even greater for parents of children under the age of 18. If you and your spouse die without wills and are survived by children who are under the age of 18, the Court will appoint a guardian to care for your children and to manage their share of your estates. Why would you want to leave such an important personal decision to someone who has never met your children? You are in the best position to decide who will care for your children in the event you die prematurely. Having a will in which you appoint your children’s guardian is the only way to avoid disputes between family members as to who should care for your children, and to insure that your children will be cared for by the person you feel is best suited as guardian.
DOES MY WILL HAVE ANY EFFECT WHILE I AM STILL ALIVE?
Although it may seem like a foolish question, it is important to remember that a will only becomes effective upon your death. As such, a will cannot be used to provide instructions in the event you become disabled, unconscious or otherwise unable to manage your affairs.
DOES A WILL DISPOSE OF ALL OF MY ASSETS?
No. A will only allows you to direct the distribution of your probate assets. Probate assets are things that you own outright by yourself. Assets like joint bank accounts, property owned with others, life insurance policies and retirement plans such as 401(k)s and IRAs are not probate assets and will not pass under your will.
WHO WILL HANDLE MY ESTATE AFTER MY DEATH?
That depends on whether you die with a will or die intestate. In a will you have the opportunity to name your executor. That person will handle your estate, including the division of your assets, the timing of the distribution of those assets and the funding of any testamentary trusts you may wish to create upon your death. If you die without a will and your family seeks court assistance, the court will appoint an administrator to perform the same duties that would be performed by an executor. Obviously, appointing your own executor and knowing that someone you know and trust will be handling your estate provides peace of mind that simply cannot be found without a will.
WILL MY ESTATE TAXES BE LESS IF I HAVE A WILL?
Not necessarily. The amount of estate tax due upon your death is based on the value of all of your assets at the time of your death, regardless of whether they pass by will or otherwise. While merely having a will does not impact on your tax liability, if your will was part of an estate plan designed to minimize estate taxes, there is a good chance that the will will include provisions that create a trust that helps decrease the amount of estate tax due. Since the estate tax laws change frequently, even if you already have a will, it is worth reviewing it with an attorney periodically to be sure that your estate plan is appropriate given the new laws.
ISN’T IT TRUE THAT ONLY THE VERY WEALTHY CAN AFFORD ESTATE PLANNING?
Absolutely not. While the cost of formulating and implementing an estate plan with assistance of an attorney varies with the complexity of the plan, the peace of mind that comes with the knowledge that you have considered and planned for the future is well worth the cost. In addition, the potential costs that may be incurred if you do not have an estate plan in place at the time of your death or your incapacity could be very significant compared to the cost of planning ahead. For example, if you become incapacitated and have not executed a power of attorney, your family may be forced to ask the court to name a guardian to manage your assets. Your family may also become parties to a lawsuit over the type of medical care you should receive if you have not appointed a healthcare agent or signed a living will. Finally, disputes could also arise over the distribution of your assets upon your death. Litigation is very costly, both monetarily and emotionally. Even without litigation, the cost of not engaging in estate planning could be quite significant if the result is that you did not take advantage of strategies that could have minimized your estate tax liability and increased the amount of assets that could be passed to your loved ones.
CAN I DISINHERIT A CHILD IN MY WILL?
While New Yorkers cannot disinherit their spouses due to the statutory right of election, they can disinherit their children in their wills. The most common practice in this regard is to mention the child that is being disinherited and to explicitly state that you are not making any provision in your will for that child. That way there can be no argument made that you simply overlookded the child.
WHAT IS THE STATUTORY RIGHT OF ELECTION?
In New York, a “disinherited” spouse may object to a decedent’s will and demand approximately 1/3 of his/her spouse’s estate. By making such a demand, the surviving spouse is said to exercise his/her right of election. Regardless of how the decedent’s will directed that the decedent’s estate be distributed, the surviving spouse who exercises his/her statutory right of election will be entitled to receive approximately 1/3 of the decedent’s assets that pass under the will, as well as approximately 1/3 of certain assets that pass outside the will.
WHAT IS A POWER OF ATTORNEY?
A power of attorney is a legal document by which you appoint an agent to manage your financial affairs. The agent, or attorney-in-fact, is not authorized to make any decisions concerning your personal care or healthcare. Those decisions are left up to a healthcare agent. An agent under a power of attorney is only authorized to act with respect to the types of transactions you specify.
WHY IS IT IMPORTANT TO HAVE A POWER OF ATTORNEY?
The main reason for executing a power of attorney and appointing an attorney-in-fact is to avoid having the court appoint someone to act on your behalf in the event you become uncapacitated. A power of attorney is an essential part of every complete estate plan because it allows you to decide who will have access to and control over your assets. If you become incapacitated and have not named an attorney-in-fact, your family or other interested party may have to commence a guardianship proceeding so that the Court can name a guardian with authority to handle your finances.
HOW MUCH AUTHORITY SHOULD I GIVE MY ATTORNEY-IN-FACT?
You can give your agent as much or as little authority as you wish. For example, you may give your agent the authority to do everything from selling your real estate to making gifts to reduce your estate taxes. On the other hand, you may want to limit your agent’s authority to bank or insurance transactions. The amount of authority given to an agent depends on your circumstances and your goals.
CAN MY AGENT ACT WHILE I AM STILL ABLE TO MANAGE MY OWN FINANCES?
That answer to that question depends on the type of power of attorney you executed. Powers of attorney generally become effective immediately upon proper execution. If you signed a durable general power of attorney, your agent can act immediately, regardless of your ability to manage your own finances. However, if you signed a springing power of attorney, your agent does not have the authority to act until a specific situation arises. For example, you may sign a power of attorney that provides that your agent can only act if a medical professional deems you incompetent. All powers of attorney become null and void upon the death of the signer.
WHAT IS THE MOST COMMON TYPE OF POWER OF ATTORNEY USED IN ESTATE PLANNING?
The most common power of attorney used in estate planning is the durable general power of attorney. The form and content of the durable general power of attorney is set by statute, although your attorney can add or modify the statutory form to suit your needs. The durable general power of attorney is effective upon execution and continues in effect until the signer dies or revokes the power in writing. In other words, your agent has the authority to act even when you are fully competent and able to handle your own affairs. That is one reason it is important to appoint an agent in whom you have unconditional trust.
WHAT IF MY AGENT OVERSTEPS HIS AUTHORITY?
Because of the nature of a power of attorney, and the fact that there is no governmental oversight of agents, an attorney-in-fact may abuse the trust you placed in him and act improperly. If that happens, you have the right to revoke the power of attorney at any time. Although there is no requirement that you file a copy of your power of attorney in any government office, you may want to file a copy with the County Clerk. If you later revoke the power of attorney, the writing revoking the power should also be filed.
DO I NEED A POWER OF ATTORNEY IF I OWN MY PROPERTY JOINTLY WITH MY SPOUSE?
Even if you own real property jointly with your spouse, in the event either of you becomes incapacitated, the well spouse will be unable to sell the property or borrow against it if needed. Selling or encumbering jointly owned property generally requires the consent and signature of all joint owners and an incapacitated owner cannot give the requisite consent.
DOES HAVING A LIVING TRUST AVOID THE NEED FOR A POWER OF ATTORNEY?
If all of your assets are in a living trust and the trust is properly drafted, you may not need a power of attorney. However, most people who create living trusts fail to transfer all of their assets to the trust and the trustee named in the living trust has no authority over assets that are not in the trust.
CAN I NAME MORE THAN ONE ATTORNEY-IN-FACT?
The durable general power of attorney allows you to name one or two agents that may act together or separately as you wish. Requiring two people to act together may make it more difficult to quickly act, but it helps eliminate abuse.
WHAT TYPE OF POWER OF ATTORNEY IS BEST FOR ME?
Although your power of attorney does not need to be drafted by an attorney, you should consult with a legal professional about the type of power of attorney that will best suit your needs and about the powers you should delegate to your agent. Your reason for appointing an agent will dictate what type of power of attorney you should have. Retaining legal counsel will not only help you decide what is best, but will also assure that the power of attorney is properly drafted, executed and notarized.
WHAT IS THE ADVANTAGE OF HAVING A POWER OF ATTORNEY RATHER THAN SIMPLY OPENING A JOINT BANK ACCOUNT WITH MY CHILD SO HE CAN PAY MY BILLS?
Although a joint account with the right of survivorship gives your child the ability to pay your bills, upon your death the entire value of the account will go directly to that child. Your other children, if any, will have no claim to that money. If the account was opened merely as a convenience to you, it may not be your intent to give the joint owner the balance in the account upon your death. The advantage of naming your child as your agent with a power of attorney rather than putting him on your account is that the money in your account remains in your estate and is subject to the wishes expressed in your will.
IS IT TRUE THAT MY SPOUSE HAS AUTHORITY OVER ALL OF MY PROPERTY IN THE EVENT I BECOME INACAPACITATED?
No. While your spouse certainly has authority over jointly owned bank accounts and investment accounts, she cannot sell real property or registered vehicles that are owned jointly without your consent. If you are incapacitated, legally you cannot give the requisite consent and your spouse will be unable to transfer the jointly owned asset. In addition, your spouse will be unable to sell or transfer any assets that are owned in your name alone. The authority to do so could be granted in a durable power of attorney.
DO I NEED A “POWER OF ATTORNEY” IF ALL OF MY ASSETS ARE OWNED JOINTLY WITH MY SPOUSE OR PARTNER WITH RIGHT OF SURVIVORSHIP?
Joint ownership with right of survivorship insures that property will pass upon death to the surviving owner automatically without the need for court intervention. However, joint ownership with a right of survivorship does not give either spouse or partner the authority to sell or transfer the property in the event the other spouse or partner becomes incapacitated. Such authority can only be granted in a properly prepared power of attorney.
WHAT IS A HEALTHCARE PROXY?
A healthcare proxy is a legal document recognized in New York by which you appoint an agent to make decisions about what medical treatments and procedures you should receive and what treatments and procedures should not be provided to you. In your healthcare proxy you may give your agent general authority to make all decisions concerning treatment, or you may limit the agent’s authority and give specific instructions about treatments you want or do not want. For example, if you want your agent to have the authority to make decisions concerning artificial hydration and feeding tubes, your healthcare proxy must actually state that you are giving that authority to your healthcare agent. Whether your agent has broad or narrow authority, your healthcare agent can only act if and when you become unable to understand your healthcare options or to express your wishes. In other words, your healthcare agent has no authority to act if you are competent and capable of communicating your wishes.
WHO CAN ACT AS A HEALTHCARE AGENT?
Anyone 18 years of age or older can act as a healthcare agent. It is important to discuss your feelings about medical treatments and procedures such as life support, artificial nutrition, artificial hydration and CPR with the person you name as your agent to be sure that he/she fully understands and is prepared to act in accordance with your wishes.
CAN I INDICATE MY WISHES WITH RESPECT TO ORGAN DONATIONS IN MY HEALTHCARE PROXY?
Yes. In addition to naming the person you wish to make healthcare decisions for you, in a healthcare proxy you can express your intention to donate your organs upon your death, if that is something you want to do.
WHAT IF MY AGENT IS NOT AVAILABLE WHEN A HEALTHCARE DECISION NEEDS TO BE MADE?
When you appoint your healthcare agent, you should also name an alternate agent who will make decisions for you in the event the first person named is unavailable. Be sure to discuss your wishes with the alternate agent.
AS A HEALTHCARE AGENT, CAN I BE HELD LEGALLY LIABLE FOR MY DECISIONS?
As long as you make all healthcare decisions in good faith, you cannot be held liable for the outcome of those decisions. Similarly, you cannot be held financially responsible for the cost of the care given to the patient as a result of your actions as a healthcare agent.
WHAT IS A LIVING WILL?
A living will is a legal document in which you explicitly state your wishes with respect to the medical care you either wish to receive or wish to have withheld under various scenarios. For example, if you have a terminal condition, if you are in a permanent vegetative state or if you have irreversible brain damage, your healthcare providers are required to treat you in accordance with the wishes you express in your living will. Some of the treatments addressed in a living will include hydration, feeding tubes, antibiotics, cardiac resuscitation and pain medication.
WHAT IS THE DIFFERENCE BETWEEN A LIVING WILL AND A HEALTHCARE PROXY?
In a healthcare proxy you appoint a person to make decisions for you in the event you are unable to do so. In a living will you do not appoint an agent but state what sorts of treatments/procedures should be given or withheld under certain circumstances. Your living will should be consistent with the wishes you expressed to your healthcare agent.
WHAT HAPPENS IF I DO NOT HAVE A HEALTHCARE PROXY OR LIVING WILL?
If you do not have a living will or a healthcare proxy and you are unable to express your wishes, you may receive treatment that you do not want. You may also become the subject of a legal battle between family members and providers over the type of treatment, if any, you should receive. Finally, you may be the subject of a costly guardianship proceeding where the court is asked to appoint a guardian to make personal care decisions for you, such as decisions about treatment or institutionalization. The unfortunate case involving Terry Schaivo is probably the best known example of what can happen when a patient does not have a healthcare proxy or living will. The Terry Schaivo case also underscores the fact that everyone, regardless of age, marital status or health, should appoint a healthcare agent and should memorialize their wishes with respect to medical treatment.
WHAT IS THE PROBATE PROCESS?
The probate process is a court-supervised process by which your will is filed with the surrogate’s court after your death, along with an application asking the court to issue “letters testamentary” to the person you named in your will as executor of your estate. Once your executor receives letters testamentary, he is able to collect all of your assets and distribute them according the plan set forth in your will. The court insures that the interests of beneficiaries who are underage, as well as those that may be disabled, are protected during the probate process.
IS THE PROBATE PROCESS EXPENSIVE?
There are costs involved with probating a will but they are quite reasonable. The only set cost involved with the probate process is the filing fee that is paid to the court and is based on the size of the probate estate. If an attorney is retained to prepare the probate petition, there will obviously be legal fees. However, unless there is some dispute or contest over the probate of the will, the legal fees should be minimal.
CAN I AVOID PROBATE AND ESTATE TAXES BY CREATING A LIVING TRUST?
While a living trust can be used to avoid the need to probate your estate, at least with respect to the assets held in the trust, a living trust has no impact whatsoever on estate taxes. That is because the assets you put in your living trust are still considered as part of your estate upon your death. Estate taxes are based on the value of your entire estate at the time of your death. Even people who have a living trust should have a pour-over will to address any assets that they acquired after the creation of the trust or that were simply never transferred to the trust. A pour-over will generally provides that assets held by the decedent at the time of his death be added to the living trust and distributed in accordance with the trust provisions.
DO ALL OF MY ASSETS PASS UNDER MY WILL?
No. Generally there are two types of assets: probate assets that will pass under your will, and non-probate assets that generally pass to a named beneficiary outside your will. Non-probate assets include life insurance proceeds, IRA’s, 401(k)’s and other retirement plans, joint accounts, assets owned with another with a right of survivorship, assets in a living trust and assets titled “payable upon death”. Although the types of non-probate assets listed would not be subject to probate, they are all considered in calculating any estate tax that may be due upon your death. Also, the distribution of these assets may trigger taxable events for the beneficiaries which should be considered as part of your estate plan.
WHAT IS THE DIFFERENCE BETWEEN AN ADMINISTRATOR AND AN EXECUTOR?
When a person dies without a will, the person appointed by the surrogate’s court to collect and distribute the decedent’s assets and to pay the decedent’s debts, including funeral expenses and taxes, is called the administrator. When a person dies with a will and that will is offered for probate, the person appointed by the court to perform the same duties as an administrator is called an executor. While an administrator receives letters of administration from the court and is required to distribute the decedent’s assets in accordance with the intestacy laws of New York, the executor receives letters testamentary from the court and is obligated to distribute the decedent’s assets in accordance with the wishes set forth in the will.
HOW OFTEN SHOULD I UPDATE MY WILL?
Periodic review of your entire estate plan, including your will, is important to insure that your estate plan reflects your current life circumstances. While there is no set interval for review, you should re-evaluate your plan when there is a major change in your life such as a marriage or divorce, the death of a child or a spouse, the sale of a business, or the onset of a potentially devastating illness. If revisions to your will are required, it is important that they are made properly since improperly made revisions to an existing will may invalidate the will and raise questions about your true intent. Just as it is best to seek expert advice when initially tailoring your estate plan and drafting your will, you should seek expert advice when the time comes to revise your will.