“Estate” is the term used for the property (personal property, real estate and financial property) owned by a person. “Estate Planning” is the term typically used to describe the steps to be taken to ensure that after an individual dies, his/her property is given to the people he/she intended to receive such property. Estate Planning also takes into consideration the tax consequences and how to minimize taxes to be paid after one’s death.
Estate Planning typically involves the review of one’s entire financial picture, and family circumstances, with an attorney during a consultation. During the initial meeting, the attorney and the client will review the client’s wishes regarding how the estate should pass. The attorney may recommend the completion of legal documents to help achieve the client’s goals. These documents may include the basic estate planning documents (Health Care Proxy, Living Will, Power of Attorney and Last Will and Testament), and, depending on the client’s circumstances, the completion of a Trust may be recommended at that time.
Estate Planning does not only involve after death, or “post mortem” planning. The estate planning attorney will also discuss completion of documents to plan for incapacity or disability as well. These documents, known as the Health Care Proxy and Power of Attorney, are important documents even for people who have small estates. While a Last Will and Testament has legal effect after the individual passes away, the Health Care Proxy and Power of Attorney are in effect while the individual is alive and serve to provide for medical and financial decision making authority by an agent or agents selected by the individual.
In New York, if a person passes away without having completed a Last Will and Testament (intestate), the individuals standing to inherit are determined according to statute. This order can be changed if one wishes, by certain means, including beneficiary designations on financials, creating a Trust during one’s lifetime, and by completing a Last Will and Testament.
A Last Will and Testament is documentation of one’s wishes regarding the disposition of his or her estate. In New York, there are requirements regarding the completion, or execution, of a Will which include the requirement for witnesses, and the requisite capacity, or understanding of the person making the Will. The Last Will and Testament must be proven valid according to the requirements of the surrogate’s court in the county in which the decedent resided. Once the surrogate’s court requirements are met, the person who has been named the executor has the duty to make sure all taxes are paid, along with particular bills of the decedent, before assets are distributed according to the terms of the Will. In addition to the executor’s duty to distribute the assets, the executor named in the Will can represent the decedent in any legal actions.
Certain language can be included in a Last Will and Testament to provide for loved ones. When completing a Will for parents of minor children, certain clauses can be included to provide for guardians and/or trustees for the benefit of the minor children in the event the parents should pass before the children reach the age of 18. Clauses can also be included for loved ones who are disabled to ensure that any government benefits will not be jeopardized should the disabled individual inherit assets.
The Power of Attorney is a document whereby the individual (principal) grants authority to a person or persons (agents) to represent the principal in financial, business and personal transactions. The principal may choose to limit the agents’ authority to specific transactions, or may give the agents broad authority for as many transactions as allowed by law.
The Power of Attorney is only in effect during the lifetime of the principal, and it can be revoked by the principal at any time.
The Power of Attorney was modified in late 2009, and again in 2010. In order to be considered valid, the document must be the above referenced modified form if signed after those dates. Additional requirements in New York are for the document to be notarized and witnessed by two people (the notary or witnesses cannot be the agents). Since the document is more complicated than in the past, it is recommended that the Power of Attorney document be drafted by and signed in the presence of an attorney experienced with these documents.
The Power of Attorney is perhaps the most important document to have in place. A validly executed Power of Attorney will allow one’s agent to act if the principal is disabled or incompetent, and can avoid lengthy court proceedings which would otherwise be required in the absence of the Power of Attorney.
Individuals are permitted to accept, refuse or delay their medical care. This authority over one’s care can be assigned to another person so that if one is unable to make medical decisions, a representative can be named in advance to assign the medical decision making authority.
Health Care Proxy
In New York State, the Health Care Proxy is the document in which a person (the principal) can select a person (agent) and one alternate agent to make health care decisions in the event the principal is unable to make decisions. We advise our clients to discuss their health care wishes and make them known to the agent. In turn, if the situation ever arises that the principal is unable to speak on his/her own behalf, the agent will have knowledge of the principal’s wishes, and make decisions based on that knowledge.
In addition to the Health Care Proxy, a Living Will is witnessed documentation of instructions for medical care in specific end of life situations. The Living Will documents which life prolonging treatments a person does or does not want if the treating physician determines that there is not a reasonable expectation of recovery. The types of treatments included in the Living Will typically include cardiopulmonary resuscitation, mechanical ventilation, intravenous hydration, artificial feeding and pain relief. Providing this information can make the medical decision making process less difficult for the agent on the Health Care Proxy.
The value of the one’s estate includes all real estate, individual retirement accounts, life insurance, and all other financial holdings. No tax is imposed on assets left to a surviving spouse (who is a U.S. citizen). On the death of the second spouse, tax will be due within nine months of date of death to the extent the value of the estate exceeds the federal and state exemption amounts.
The present Federal Estate Tax exemption is $5,340,000 for individuals who pass away in 2014. This means that if a person dies with less than $5,340,000 in his/her estate, there will be no Federal Estate Tax due. This exemption amount is indexed to rise with inflation each calendar year.
As to estate taxation at the state level, the 2014-2015 Executive Budget set an exemption amount of $2,062,500 for individuals that pass away between April 1, 2014 and April 1, 2015. Starting in April 2015, the exemption will gradually rise each year until 2019, at which time it will match the Federal exemption amount (also indexed for inflation).
Estate planning can allow for the married couple to pass up to twice the exemption amount (currently $4,125,000.00 for New Yorkers taxed at the state level; up to $10,680,000 at the Federal tax level) free of estate taxes. If the gross estate of a married couple exceeds $4,125,000.00, this can result in significant tax savings.
While individuals and married couples with assets that do not approach the above stated figures may not necessarily benefit from “estate tax planning," estate planning is necessary to ensure that on death, assets are passed to the desired beneficiaries in the most cost-effective manner possible. A thorough estate plan will provide for your particular goals, based on your individual circumstances. This can include planning for minor children, beneficiaries with special needs, and planning to avoid the expense and delays of the probate process.