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AVOIDING PROBATE

Estate Planning

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Many people know that they want to avoid probate, but don’t understand the benefits of doing so. “Probate” is a process in which a court validates a will. In addition, the entire process of administering an estate is called a probate.

Probate can be an expensive and long process, so if you are like most people, you will want to avoid it.

Jointly Owned Property

Jointly owned property avoids probate. An example of this is when a married couple owns a home together. With jointly owned property, there is no need for probate because the property is automatically transferred to the other owner once someone dies.

It is important to speak with an estate planning attorney to decide if joint ownership is a good idea for your personal situation.

The Revocable Living Trust

Many people use the revocable living trust to avoid probate. This makes the trust become the main focus of an estate plan instead of the will.

In order to avoid probate, it is imperative that your revocable living trust be fully funded.

This means that your assets will be in the name of your trust.

Gifts

A great way to avoid probate is by making sure property is not yours when you die.

However, make sure that you only gift things that you do not need.

It can be a great experience to see your loved ones enjoy your gifts during your lifetime.

If you give away more than $13,000 per year per individual, you will be required to file a gift tax return. Married couples are able to gift up to $26,000 per year.

Contract Property

Another way to avoid probate is by naming an individual as a beneficiary of your contract assets. This includes retirement accounts and life insurance, payment on death (POD) accounts, and transfer on death (TOD) accounts.

If you name your estate, probate is required.

It is important to speak with an estate planning attorney to decide if POD or TOD accounts are a good idea for your personal situation.

If you have questions about the probate process and how to avoid probate, consult a qualified probate attorney. He will professionally guide your throughout the entire process.

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It would be in your best interest to have a will (and a complete estate plan.) If you die in the state of New York and you don’t have a will, the state will create one for you. In our experience, the state’s will isn’t one you’d create for yourself.

Dying intestate

“Dying intestate” means that you die without a will and that the state of New York decides who administers your estate, raises your minor children, and gets your assets.

Asset Distribution

For example, if you die without a will:

  • But with a spouse and children, your spouse receives $50,000 plus one-half of your estate. Your children receive the other half of your estate.

Considerations:

  • Would you want your 20 year old to inherit a large sum of money?
  • Would you want your spouse to be left without enough to support herself?
  • Would you want your child who was addicted to drugs, going bankrupt, on public assistance, or going through a divorce to inherit one half of your estate?

Your Minor Children

If you don’t appoint a guardian for your minor children in your will, the courts of the state of New York will appoint guardians for you.

Considerations:

  • These may not be the guardians you think would be best for your children.
  • Family members may go to battle to fight over your children.
  • No one may step up to care for your children and they may be separated in foster care.
  • You can’t assume that you spouse will care for your children, as he or she may be in a common accident with you.

Your Estate Administration

If you haven’t named an executor in your will, the court will appoint an executor called an “administrator” to settle your estate.

Considerations:

  • The person named by the court may not be the same person you would choose
  • Your administrator gets paid by your estate
  • Your administrator is privy to all of your private information and is in charge of your assets

If you have questions about dying without a will in New York, consult with a qualified New York estate planning attorney.

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If you’re like a lot of people you know you should have a Will and feel guilty that you don’t have one. There’s another large group of people who don’t know if they need a Will or they think that they don’t need a Will. Which group are you in?

Okay, first of all, EVERYONE, age 18 or older, needs a Will. Yes, everyone. Even you need a Will; no matter what. For those of you with trust planning, you likely have a Will but may not know why. You have a Pour-Over-Will. The Will only has one beneficiary, your trust. It acts like a legal “pooper scooper,” picking up an assets not in the trust and pouring them into the trust. Additionally, the Will names guardians to care for your minor children and the executor to administer your estate.

Now, for those of you with only a few assets, yes, you still need a Will. Your Will names guardians to care for your minor children and the executor to administer your estate and distributes the few assets you do have. There is business to attend to such as paying last bills, filing tax returns (income tax and any applicable inheritance tax), canceling utilities and subscriptions, and paying for the funeral and burial.

A Will is an essential part of any estate plan. These legal estate planning documents work with your Will to ensure that your wishes are carried out: Durable Power of Attorney, Health Care Proxy, Living Will, HIPAA Release, Organ Donation Release and perhaps a Revocable Living Trust.

If you are unsure whether you need any of these particular estate planning tools, contact your estate planning attorney who will be happy to answer your questions and guide you through making a Will and your estate planning.

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It is common for families not to talk about such things as what they will inherit when mom and dad is gone. This type of conversation can be uncomfortable for parents, and make children feel as if they are doing something wrong for even thinking about such things. As a result the subject is often swept under the rug until the time comes that there is no choice but to talk about it. This can lead to some major family disputes because children may be surprised at what they parents wishes really were.

To make this conversation easier for everyone involved, it is a good idea to think about estate planning as a way to show your family that you love them. If you have an estate plan in place, when you die your family will have much less stress to deal with.

The best thing to do with your estate plan is to not let it be a surprise to those that it will affect. If you let your loved ones know what you have in mind as far as their inheritance, there will be fewer problems later. Even if they don’t necessarily like what you plan to do, they will better be able to accept it if they hear from you that it is what you want.

Broach the subject with your family when everyone is together, even if you need to call a family meeting for that specific purpose. A big mistake is to talk about your estate plan during holiday gatherings, as it may ruin the holiday for some, and cause hard feelings. If your family is aware that they are coming together for the purpose of discussing this touchy subject, they will be better prepared to deal with it.

Once you have given your family an outline of what you will have in your will or trust, you can then ask for everyone’s input so that their opinions can be considered. Of course you will still create your plan in a way that you feel is best, but at least if your children and grandchildren are able to give you their input, they will not feel as if they simply never had the opportunity to talk with you about it.

It is true that discussing your estate and eventual death with your family is a very uncomfortable thing to do, but it is definitely a step you need to take to keep peace within your family.

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The power of attorney is a powerful document; likely the most powerful legal document that you’ll ever sign. However, it is not an all powerful magic wand. The power of attorney has limits.

Not a Magic Wand

The power of attorney is not a magic wand because it’s not always honored, especially if it’s older or the signature looks scribbled. It is common place for a power of attorney to be refused because of its age as institutions are afraid of honoring a revoked, forged, or fraudulent document. Thus, it is extremely important to keep your estate plan up to date.

It is also common for a financial institution to refuse to honor a power of attorney because it’s not their form. Such institutions don’t want to analyze the legality and validity of each power of attorney for each client. They want you to use their forms.

Belt and Suspenders

Disability provisions in a revocable living trust and a power of attorney work well together. Trusts and trustees are never refused. However, a trustee may only manage assets that are titled into the name of the trust. If an asset is not funded, the agent under the power of attorney must manage that asset.

It is prudent to have a “funding power of attorney” so that your agent has the authority to transfer your assets into your trust on your behalf. However, there are some assets such as retirement accounts and cars (in some states), that cannot be transferred into the trust, so the power of attorney agent must act.

Successors

It is common for the trustee of your trust and your agent under your power of attorney to be the same person. Be sure to name successor trustees and agents in the event that your named trusted helper is unable or unwilling to serve.

If you have questions about powers of attorney or disability planning with a revocable living trust, consult with a qualified estate planning attorney.

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When you are in the business of estate planning you have an uphill battle when it comes to the matter of procrastination. People have a tendency to postpone the things that don’t seem to be immediately relevant to them, and nothing could fit this description more aptly than preparing for death.

Though it is easy to relate to this line of thinking it can be quite problematic, because however we may think about it, we all do pass away. And in a significant percentage of cases the ideal amount of forewarning is not forthcoming. Death is often preceded by a period of decreased mental and physical capabilities, so if you put off planning your estate too long it may not be possible for you to do it properly.

This having been said, sooner or later most people do finally get around to planning their estates, but this is just the first step. When you put an initial estate plan in place you will be working with personal and societal realities as they exist at that particular point in time. Things are constantly in flux, and on the one hand you go through changes that are specific to your own life. Your marital status may change, you might buy or sell a business, and the value of your investments may fluctuate significantly. All of these things could warrant adjustments in your estate plan.

There are also things that take place that impact the society as a whole that are relevant to your estate plan. A prime example is the new tax legislation that was passed in the middle of December. The Federal estate tax exclusion was scheduled to be just $1 million in 2011, but it has been raised all the way up to $5 million. In addition, the top rate has been reduced to 35%. These alterations are limited in time, and are due to expire at the end of 2012, when the estate tax exemption will be reduced back to $1 million with the top rate of 55%. Also, New York State’s estate tax exemption remains at $1 million. These changes are very relevant to many taxpayers, making a 2011 estate plan review a must. Do the right thing and make an appointment with your estate planning attorney sooner rather than later to discuss how these changes affect your present plan and what adjustments might be necessary going forward.

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We have highlighted the inheritance planning strategy of gift giving previously, but there is an exemption that is often overlooked that we would like to look at today. To provide some context the purpose of giving gifts from an estate planning perspective is to reduce the value of your estate in an effort to limit or eliminate your heirs’ estate tax exposure. On a personal level, when you give those who would be receiving inheritances from the estate gifts while you are still alive you get to enjoy the exchange and it is a totally positive experience for all concerned.

Of course there is a gift tax that comes in at a rate that mirrors the estate tax, but there are exemptions that you can utilize. The one we want to take a look at here is the tax-free medical gift. Each individual can pay the medical expenses of an unlimited number of people without incurring any gift tax responsibility. This includes necessary health care treatments and not elective measures like cosmetic surgery. It should be noted that the high cost of nursing homes and assisted living facilities are a cause for concern in elder laws circles, and these can be mitigated through tax-free medical gift giving depending on the circumstances.

Paying the bills when someone that you care about becomes ill is one way to take advantage of this gift tax exemption, but you can also pay for the health insurance of as many people as you want to regardless of the total cost. This includes some forms of long-term care insurance as well, so you can really provide your loved ones with quite a safety net if you choose to give them medical gifts. Aside from the insurance and perhaps paying for the long-term care of a loved one it is hard to have a hard and fast health care gift plan in place, but it is something to keep in mind should you find that a family member is in need of medical assistance.

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When the value of your estate exceeds the estate tax exclusion amount your estate planning objective is to rearrange your assets to create space and bring the value of your estate under that exclusion. Giving gifts is one way of doing this, but of course the IRS is well aware of this so there is the gift tax to contend with. However, there are financial instruments that can be used to facilitate tax-free gift giving when they are successfully implemented, and one of these is the grantor retained annuity trust or GRAT.

The objective of the grantor retained annuity trust is to pass along the appreciation of volatile assets, so when you create the trust you fund it with things like stocks and other securities, business interests, and real property. You name a beneficiary and set a term during which you as the grantor or donor will receive annuity payments from the trust. This term can be as long as you want it to be but the assets in the trust will go back into your estate if you die before the term expires so you have to keep this in mind.

The strategy we are presenting here is the “zeroed out” GRAT. The funding of the trust constitutes a taxable gift, but the IRS sets the value of this gift using the Federal Midterm Rate that is in effect during the month that the trust was created. This taxable value will be reduced by your retained interest in the trust, so if you “zero it out,” i.e. take payments out of it throughout the term that, when combined, are equal to the original taxable value, you owe no gift tax. At the end of the term, if the assets appreciated beyond that original taxable value your beneficiary assumes ownership of this remainder tax-free.