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ESTATE PLANNING: WHAT DO I NEED TO KNOW?

Davidov Law Group

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There are people who do not take estate planning very seriously, because they simply do not understand all of the facts. They assume that they can quickly create a last will when they are senior citizens, and they think that is the long and short of it.

In reality, there are a great many things to take into consideration if you want to be prepared for the eventualities of aging as you simultaneously craft a suitable legacy. Let’s look at some of the facts.

Asset Transfers

A last will can be used as an asset transfer vehicle, but it is not your only choice. In fact, a last will would not be the optimal solution for many people.

For example, in a perfect world, would you like to have a professional money manager distribute assets to an heir or heirs after your passing in a conservative, measured fashion over an extended period of time? If you were to use a trust such as a revocable living trust instead of a will, you could make this happen.

Plus, the asset transfers would take place outside of the legal process of probate. A will must be admitted to probate, and this is a time-consuming and sometimes expensive process.

High net worth individuals may be exposed to the federal estate tax, and there is also a state-level estate tax to contend with in the state of New York. A last will would not provide estate tax efficiency, but there are other legal devices that would mitigate your estate tax exposure.

These are just a couple of examples, but there are other scenarios that would call for different asset transfer vehicles.

Incapacity Planning

Incapacity planning is another important consideration. Up to 45 percent of people who have reached the age of 85 are suffering from Alzheimer’s disease, and of course, this is not the only cause of incapacity.

You could appoint someone to manage your financial affairs in the event of your incapacitation through the creation of a durable power of attorney. With a health care proxy, you could empower a health care decision maker.

A living will could also be included to state your wishes regarding the utilization of life-sustaining measures.

Long-Term Care

Most seniors will need long-term care eventually, and Medicare will not pay for it. Nursing homes and assisted living communities are extremely expensive, so this is an issue that you must address when you are creating a long-term financial plan.

Schedule a Free Consultation

If you have estate planning questions, our firm can provide answers. We offer free consultations, and we would be glad to help you put a personalized plan in place.

To set up an appointment, send us a message through our contact page: Queens NY Estate Planning Attorneys.

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If you want to plan your estate as you simultaneously brace yourself for the eventualities of aging, you have a lot to think about. The typical layperson is not going to understand exactly what to expect. We make an effort to provide relevant information through our ongoing series of free estate planning workshops.

We are pleased to announce our January Wills, Trusts and Nursing Home Asset Protectionworkshop dates. These are the first workshops that we are offering in 2014, and we encourage you to attend the session that fits into your schedule.

The workshops are being held later in the month on January 22 in Woodside and Maspeth, January 23 in Elmhurst and Astoria, and January 25 in East Elmhurst.

To find out the exact locations and starting times, visit this page: Davidov Law Group January Workshops.

When you visit the page you will see a registration button under each respective workshop. Please take the time to register for the session that you would like to attend. These workshops are absolutely free, but seating is limited — we do need to know if you are attending so that we can reserve your seat.

Let’s take a brief look at the subjects that will be covered.

Wills and Living Trusts

Most people know that you could use a last will to express your final wishes. If you do use a will, the estate must be probated. Probate is a legal process that provides certain protections. You may also know that the probate process can be time consuming and expensive.

For that reason you may want to arrange for asset transfers outside of probate. While there is nothing inherently wrong with the probate process, you do have the right to avoid it if this is your choice. This can be done through the creation of a revocable living trust.

During the workshops we will discuss in detail the differences between wills and living trusts, as well as other topics that relate to preserving your legacy.

Nursing Home Asset Protection

In the upcoming workshops we will also be taking an in-depth look at nursing home asset protection. Most people are going to need assistance with their day-to-day needs eventually. Nursing home care is very expensive and Medicare will not pay for it.

Many seniors ultimately utilize Medicaid to pay for long-term care. You must take certain steps to protect your assets if you would like to become eligible for Medicaid late in your life.

Take Advantage of This Opportunity

We hope you take this opportunity to obtain valuable estate planning and nursing home asset protection information at the upcoming free workshops. We look forward to seeing you later in the month!

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A comprehensive estate plan will include an incapacity planning component. A significant percentage of senior citizens become incapacitated to one extent or another. While there are other causes of incapacity, around 45 percent of those who have reached the age of 85 are suffering from Alzheimer’s disease.

If you were to contract Alzheimer’s, dementia can set in. Those who are suffering from dementia may not be able to make sound financial and medical decisions.

A question arises: who would be empowered to make decisions on your behalf in the event of your incapacitation?

Guardianship

If you do not take any steps in advance to prepare for possible incapacitation, the state could be petitioned by interested parties to appoint a guardian to manage your affairs. You would have no control over the choice of guardian.

Power of Attorney

You can take the matter into your own hands in advance by executing a particular type of power of attorney. A durable power of attorney would remain in effect even if you were to become incapacitated. If you execute a durable power of attorney, you are preventing a guardianship proceeding.

The attorney-in-fact or agent that you name in the device would be empowered to handle your financial affairs in the event of your incapacitation.

The major difference between a guardianship and a power of attorney is the matter of choice. With a guardianship, the state of New York would decide on the person who would manage your affairs. If you execute a durable power of attorney, a hand-picked decision-maker of your own choosing would handle your finances.

Health Care Proxy

In addition to a durable financial power of attorney, to be comprehensively prepared for possible incapacitation you should execute a document called a health care proxy. This is similar to a power of attorney for health care decision-making. You name a proxy, and this individual would be legally empowered to make health care decisions on your behalf should you become incapacitated at some point in time.

Prevent a Guardianship

It is highly unlikely that you would want the state to decide who will handle your financial and health care decision-making in the event of your incapacitation.

You have the power to assert your wishes with regard to decision-makers who would act on your behalf if you become unable to manage your own affairs. When you have a comprehensive estate plan in place that also addresses the possibility of incapacity, you can go forward with peace of mind.

If you would like to discuss incapacity planning with an experienced estate planning and elder law attorney, get in touch with us to schedule your assessment. You can request an appointment through the contact page on this website.

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It is important to understand all of your options when you are planning your estate. You may automatically assume that you should use a last will. While you can certainly go this route, you may also want to consider the creation of a revocable living trust.

There are those who assume that trusts are only useful for the wealthy. This is not the case. Revocable living trusts can be beneficial for people of relatively ordinary means.

Ongoing Control

When you convey assets into a revocable living trust, you are called the grantor of the trust. The trust is comprised of a beneficiary or beneficiaries who will receive monetary distributions out of the trust, and the trustee who will administer the trust.

As the grantor of a revocable living trust, you can act as the trustee and the beneficiary initially. As such, you do not surrender control of the assets that you have placed into the trust. Because it is revocable, you can actually revoke or rescind the trust, and it would no longer exist.

When you create the trust you spell out your wishes in a trust agreement. As the grantor, you can change the terms of the trust along the way. You could add or remove beneficiaries, and you could alter the distribution terms.

Value of Revocable Living Trusts

When you create a revocable living trust, you are facilitating a smooth and efficient transfer of assets to your loved ones after you pass away. The trustee follows the terms of the trust to distribute resources to the beneficiaries according to your wishes. Unless there is a challenge to the trust, there are no legal impediments.

Things are different when you use a last will to state your final wishes. If you use a will, the executor must admit the will to probate. The administration of the estate would take place under the supervision of the probate court.

Probate can be a time-consuming process. The exact duration varies depending on the complexity of the case in question. A relatively routine case could pass through probate in approximately nine months to a year.

In addition to the time factor, there is the expense factor. Costs can accumulate during probate, and this is another one of the drawbacks.

Probate avoidance is a big benefit that you gain when you create a revocable living trust. In addition to this, there is also the matter of incapacity planning.

A significant percentage of senior citizens become unable to handle their own financial affairs late in their lives. If you do nothing to prepare for this eventuality, the court could be petitioned to appoint a guardian to act on your behalf.

This is not necessary if you have a revocable living trust. You could name a successor or disability trustee, and this individual or entity would be empowered to administer the trust in the event of your incapacitation.

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As you get older, you may begin to think long and hard about the eventualities of aging. When you look at the statistics, you will find that most American senior citizens will need help with their day-to-day needs eventually. Long-term care is very expensive, and Medicare does not pay for custodial care. Medicaid is a government program that will assist with these expenses.

Need-Based Health Insurance

Unlike Medicare, Medicaid is a need-based health insurance program. Your assets and income must stay within certain limits if you want to qualify for Medicaid to pay for living assistance.

A logical thought would be that you could simply give your assets to your family members who would otherwise be inheriting these resources if you find out that you need to enter a nursing home or assisted living community. You could then qualify for Medicaid.

In reality, this is not possible because of the five-year Medicaid look-back period. When you apply for the program, eligibility evaluators will examine your financial transactions going back five years. If they find that you have given away assets within five years of submitting your application for Medicaid coverage, you will be deemed ineligible for a period of time.

The exact duration of this penalty will be calculated by comparing the cost of long-term care in the state of New York to the amount of the divestitures.

Advance Planning Is Key

Sticking your head in the sand as you hope for the best is probably not an effective strategy when you consider the fact that 70 percent of people turning 65 will indeed require long-term care. It is likely that you will need living assistance, and long-term care is very expensive.

The costs have been steadily rising, but at the present time a room in a nursing home in the state of New York comes with an annual price tag that exceeds $137,000. About 10 percent of the people who reside in nursing homes remain in the homes for a minimum of five years.

If you plan ahead in advance with future Medicaid eligibility in mind, you can potentially position your assets optimally at least five years before you apply for coverage.

Free Medicaid Planning Special Report

There is a lot to take into consideration if you are interested in Medicaid coverage as a senior citizen. The program rules are complex, and you have to do some research to understand the details.

Our firm has prepared a free special report that takes an in-depth look at Medicaid planning for those who are concerned about future long-term care costs. The report can be accessed through this website. To obtain your copy of the report, click this link and follow the simple instructions: Free Special Report on Medicaid Planning.

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If you want to provide resources for the benefit of someone with a disability, you should consider the creation of a special needs trust. This type of trust, alternately referred to as a supplemental needs trust, can enhance the life of the beneficiary without impacting his or her government benefit eligibility.

Let’s look at special needs planning from an overview before we examine the costs.

Medicaid and Supplemental Security Income

Medicaid is a government health insurance program for people who can demonstrate significant financial need. Supplemental Security Income is also a need-based program. Many people with disabilities rely on both of these programs for care, treatment, and income.

Because they are need-based programs, you could lose your eligibility if you were to come into a significant sum of money. This is something to take into consideration when you have someone with a disability on your inheritance list. If you were to name someone with a disability in your last will, his or her inheritance could impact benefit eligibility.

Special Needs Trusts

A good way to provide assets for someone with a disability would be to make this person the beneficiary of a special needs trust. When you create the trust agreement you name a trustee. This individual or entity will administer the trust.

The trustee can use assets that you have conveyed into the trust to satisfy the supplemental needs of the beneficiary. The expenditures are approved for expenses that are not covered by government benefits. As a result, when you create such a trust you are facilitating an improved quality of life for the beneficiary, but you are not jeopardizing government benefit eligibility.

Cost of Trust Creation

There are certain legal costs that are going to go along with the creation of a special needs trust. The exact figure will vary depending on the circumstances.

When you are thinking about the costs associated with a special needs trust, you may want to focus on the cost of a loss of benefits as well. Depending on the disability in question, care and treatment that is paid for by the Medicaid program could cost millions of dollars over a lifetime. A loss of SSI could be costly as well.

Special Needs Planning Consultation

If you are concerned about the cost of trust creation, we would be glad to discuss special needs planning with you in person. We offer consultations in our office located in Kew Gardens, Queens, and you can request an appointment electronically through this website.

At the consultation we will answer all of your questions, address the matter of cost, and help you create a custom crafted estate plan that ideally suits your needs if you decide to go forward.

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Sometimes people who don’t have an extraordinary amount of wealth assume they don’t need to discuss estate planning with an attorney. They are aware of the fact that the estate tax is only applicable to large estates, and they think that only those who are subject to the estate tax should plan ahead.

There are a number of reasons why this is patently untrue, but the one that we would like to take a look at here is the need to plan ahead for possible incapacity.

You undoubtedly understand the fact that some people do become incapacitated. But you may be willing to gamble because you think that it is statistically unlikely that this will happen to you. If this is your stance you should know a few things about Alzheimer’s disease.

This disease strikes at an alarming rate. According to statistics provided by the Alzheimer’s Association about 13% of people who attain senior citizen status (i.e. those who are at least 65) have contracted Alzheimer’s disease.

This percentage may seem relatively small, but if you take it a step further you find that 45% of people who are at least 85 are Alzheimer’s sufferers.

People are living longer and longer lives, and it is quite possible that you will indeed live into your mid-eighties and perhaps beyond.

For the above reasons incapacity planning is a must. This will typically include the creation of a health care proxy and a durable power of attorney empowering decision-makers of your own choosing to handle your affairs in the event of your incapacitation.

If you are currently unprepared for the possibility of incapacity you would do well to execute these important documents with the assistance of a licensed estate planning attorney sooner rather than later.

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The process of probate in New York is a factor to consider when you are planning your estate. Estate planning is often equated to the execution of a last will. If you do utilize a last will as the legal device that will facilitate the transfer of your assets, these transfers won’t take place until the estate has been probated.

Positives

This post is about the drawbacks of probate in New York. Many things that have negatives also have positives, so we would like to look at the matter from a fair and balanced perspective. Along these lines we would like to touch upon the positives before we look at the drawbacks.

In the state of New York probate has become rather streamlined. Probate is not some type of nightmare. It is in place to provide certain protections. If you work with an estate planning attorney to arrange for the distribution of your property through the terms of a last will, the probate process may be a small bump in the road and nothing more.

Drawbacks of Probate

Even though probate does provide protections, there are some drawbacks. The Surrogate’s Court is the judiciary body that is involved in the probate process. The will must be admitted to probate to set the wheels in motion.

The court is going to determine the validity of the will. If anyone wanted to challenge the will, an argument could be presented during probate. As a result, there is a ready-made forum in place that provides a window of opportunity for challenges.

Some will challenges are completely valid. On the other hand, there are cases where disgruntled parties can’t accept reality. They can slow things to a standstill when they really don’t have a good case.

Short of a challenge that draws the process out considerably, there are many different tasks that must be undertaken during probate that are time-consuming.

The heirs to the estate do not receive their inheritances while the estate is being probated. This time lag that goes along with probate is one of the major drawbacks.

Another drawback of probate would be the expenses that are incurred during this process. There are numerous different costs that will typically accumulate.

The court will charge a filing fee, and the executor is entitled to payment. The executor will often call in a probate lawyer and a tax accountant. Of course these professionals charge for their time and expertise.

Property appraisals may be necessary, and liquidation concerns may be engaged. Other ad hoc expenses may present themselves as well.

In addition to time and money, the third and final drawback of probate that we would like to mention is the loss of privacy. Probate is a public proceeding. Anyone who takes the time to access court records can know exactly what went on during the probate process.

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When you hear about the gift tax you may wonder about the details. Are gifts that you give to your children taxable?

Let’s examine the answer to this question.

Gift Tax Parameters

You cannot discuss the gift tax without discussing the estate tax, because the gift tax is unified with the estate tax. In fact, the gift tax would not exist if it was not for the estate tax, because it is in place to close a loophole.

If there was no gift tax, you could give gifts to your loved ones while you are still living to avoid the death tax. This is why there is a gift tax in place.

There is a unified gift and estate tax credit or exclusion. You can transfer assets up to this amount, while you are living or after you pass away, free of taxation. The amount of this exclusion in 2014 is $5.34 million.

The maximum rate of the gift and estate tax is 40 percent.

To explain what this means to you in direct terms, you could give tax-free gifts during your life to your children, or to anyone else, totaling $5.34 million. Anything that you were to give above and beyond this amount would potentially be taxable.

(There is a caveat to the above statement. Gifts to your spouse are totally exempt from transfer taxes.)

Annual Gift Tax Exclusion

You should be aware of the fact that there is an annual gift tax exclusion that exists apart from the unified lifetime exclusion. It is possible to give as much as $14,000 annually to each of your children, or to any other gift recipient, free of the gift tax.

If you give $14,000 or less per person, you would not be using any of your unified lifetime exclusion to give the gifts tax-free.

This exclusion is very useful for those who are exposed to the estate tax. You can give these limited gifts to people who would otherwise be inheriting money from you someday tax-free.

If you use the annual exclusion over a number of years, you can transfer a significant sum free of taxation. As you are doing this, the overall value of your estate is being decreased, and your estate tax exposure is being decreased along with it.

Other Tax-Free Gifts

In closing we would like to touch upon two additional exemptions. You could pay the school tuition for others free of taxation. These educational gifts can be given to any number of people, and there is no limit to the total amount you can give.

You do have to give the gifts directly to the institutions to pay for tuition only, not books or fees.

It is also possible to pay for the medical expenses of others tax-free. This gift tax exemption extends to the purchase of health insurance for the benefit of others.