Davidov Law Group

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.

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.

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.

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.

Medicaid is a vast and complicated program that is of interest to different people for different reasons. It has actually become more difficult to understand since the health care laws have been changed.

In this post we will look at Medicaid in Kew Gardens NY only as it applies to long-term care for senior citizens.

What About Medicare?

When you are planning ahead with your senior years in mind you may not consider the relevance of Medicaid. If you have paid into the program sufficiently throughout your working years while you are paying taxes, you will qualify for Medicare.

Medicare is a health insurance program for senior citizens. Your eligibility kicks in when you reach the age of 65 if you have accumulated at least 40 retirement credits by working throughout your life. You can accumulate as many as four of these credits each year. As a result, the requirement is not that stringent. The vast majority of senior citizens will qualify for Medicare.

Most senior citizens will also need long-term care. The problem is, Medicare does not pay for living assistance. It will pay for up to 100 days of convalescent care only. If you need help with your activities of daily living that are not considered to be medical in nature, you have to look elsewhere for financial assistance.

Medicaid

Medicaid is actually used by most senior citizens who are in nursing homes. This is true even though the majority of people who are using Medicaid to pay for long-term care once qualified for Medicare.

Long-term care costs are extremely high. What do you do if you have spent everything you have on your long-term care but you need more? The answer is that you would qualify for Medicaid.

This is not a very appealing end-of-life scenario, but it is something that many senior citizens are facing today. Many seniors will face it in the future as well.

It is possible to be proactive about the situation by implementing Medicaid planning strategies. Working within the program rules, it may be possible to divest yourself of assets in certain ways well in advance of applying for Medicaid to assist with your long-term care costs.

You do have to look ahead well into the future, because you can be penalized and your eligibility will be delayed if you give away assets within five years of applying for Medicaid.

There are also complicated rules regarding what your spouse may be able to keep if you need Medicaid to help pay for long-term care expenses. Protecting your home from future Medicaid recovery efforts would be another issue that would be addressed within a Medicaid plan.

If you are interested in discussing Medicaid with a licensed Kew Gardens NY elder law attorney, don’t hesitate to contact our firm to schedule your assessment.

Estate taxes can significantly erode the wealth that you have accumulated throughout your life. One imposition of the estate tax can play havoc with your financial legacy, but it can actually be levied over multiple generations.

The maximum rate of the federal estate tax is 40 percent at the present time. The amount of the credit or exclusion in 2014 is $5.34 million. If your assets exceed this amount, you should be implementing wealth preservation strategies.

If you can position assets outside of your taxable estate you will be protecting your wealth for the benefit of your family. This can be done through the creation of certain types of trusts.

Revocable vs. Irrevocable

A revocable trust allows the grantor (the person creating the trust) to retain incidents of ownership. If you are the grantor of a revocable trust, you can change the terms at will and even revoke the trust if you want to go this route. The assets that you have conveyed into the trust would then become your personal property once again.

Things are different with irrevocable trusts. You cannot revoke them, and you do surrender incidents of ownership. As a result, generally speaking, assets that have been conveyed into an irrevocable trust would not be part of your taxable estate.

Generation-Skipping Trusts

One type of irrevocable trust that can be useful for those who want to protect family wealth would be the generation-skipping trust. As the name implies, you would make your grandchildren the beneficiaries of a generation-skipping trust rather than your children.

Your children could however benefit from the assets that have been conveyed into the trust. They could receive distributions of income earned by the trust and utilize property held in the trust. Under a special power of appointment they may even be able to make decisions with regard to the actions of the trust.

However, they never technically own the assets that have been placed into the trust. Therefore, their access does not result in estate tax liability.

After the death of the children, the grandchildren inherit the trust. Two generations would have benefited from the trust, but there would be just one round of taxation.

Wealth Preservation Strategies

The generation-skipping trust is just one type of trust the can be used if you want to preserve wealth for the benefit of your loved ones. There are other types of trusts (and other legal devices) that can be useful as well.

If you would like to discuss wealth preservation strategies with a licensed estate planning attorney we invite you to contact our firm to schedule your assessment. We will gain an understanding of your financial position, become apprised of your objectives, and explain your options to you.