1. Wills.

What is a will? A will, sometimes referred to as Last Will and Testament, is a legal mechanism for passing or distributing property and wealth without consideration (i.e., without anything in return). A will is a set of instructions on how you want your property and wealth distributed. Wills are legal documents with a long, complicated legal history behind them, and they depend on many state-specific laws. There is also no room for error: certain strict formalities must be followed, or a will is not going to be valid or enforceable. Therefore, you should always speak to a knowledgeable attorney about drafting your will that you will be satisfied with.

A will can precisely direct who gets what property and when, and even for how long. You can appoint an executor in your will to administer your estate. Wills are public documents. You can use your will to direct your property into a trust you previously established, to be managed and distributed according to the trust terms.  This is called a “pour-over will”. Trusts and estates are frequently used together with wills to achieve a number of tax, administration and asset protection advantages.

Why do I need a will? You need a will to distribute your property and your wealth the way you want. Your intent is paramount when it comes to distributing your property. However, the distribution frequently takes place after the death of the property owner, so ascertaining the owner’s intent is no longer possible unless there is a clear set of instructions left for the distribution of property and wealth. We spend our lives to attain financial security for ourselves and our families. As we do that, we usually accumulate wealth and property- real estate, personal property, and intellectual property. After spending a lifetime of building up wealth and property, you can, and should, determine how they are distributed.

Without a valid will (or previously settled trust), state law governs the distribution of your property. In other words, property either passes by operation of law because of the way title is held in the property, or it is passed by intestacy rules. People who do not have a will to govern the disposition of their property risk leaving their property to individuals they did not intend to benefit in the first place.

Also, a court will appoint an administrator to oversee the distribution of your property if you do not leave a valid will or trust naming an executor or trustee to do that. The court will also appoint a guardian for your minor children, to manage their share of your property. Although typically the surviving spouse is appointed, this is not guaranteed, and your children’s money may come under the management of someone you don’t even know. This guardian may not make the best money management or investment decisions.

Furthermore, people who die with no heirs risk their entire wealth and property passing to the state (this is called “escheat”) if they have done no estate planning to direct the distribution of their property. A will ensures that doesn’t happen and the proper beneficiaries are named, notified of their inheritance, and take their share.

Finally, making sure that your wealth and property are distributed according to your wishes usually helps avoid fights over inheritance among beneficiaries. In fact, in most states, a will may be designed to prevent a disposition of wealth or property from taking effect in case the will is contested by a beneficiary. In other words, if beneficiaries challenge your decisions in court because they think they are entitled to a larger share of your wealth or property, they may lose any and all entitlement to their share of the inheritance. A well-drafted will may also spell out why any particular beneficiary is getting a different amount of property or wealth than other beneficiaries. This helps avoid resentment among beneficiaries, who are usually family members, by explaining the reasons behind bequests.

Why doesn’t everyone have a will? Everyone should. This gives them a peace of mind in knowing that their wishes regarding their property will be respected and carried out and that their loved ones will be taken care of.

How frequently should I update my will? A good rule is to update your will (1) at least every five years; (2) when federal or your state’s tax laws change; (3) when events occur that affect the distribution of your wealth and property; (4) or when your wishes regarding your property distribution change. Common examples of these events are marriages, divorces, births or adoptions, or deaths of persons to whom you wanted to leave a part of your wealth or property. There are some laws that deal with these kinds of situations, and a good will should account for these contingencies. However, there is no reason not to “catch up” and refresh your disposition instructions if possible.

What is a living will? A living will is a set of instructions regarding your health care that you want carried out should you become incapacitated and unable to make decisions. The directives usually include instructions on the use of cardiopulmonary resuscitation, assisted feeding, assisted breathing, and other life support methods. The living will can be coupled with a power of attorney for health care to allow for more flexibility.

2. Trust

What are trusts? Trusts are legal mechanisms of passing or protecting and distributing property and wealth as gifts and for the management of assets. Just like wills, these mechanisms can precisely direct who gets what property and when, and even for how long. You can appoint a trustee who will hold and manage property in trust for your beneficiaries. Unlike wills, trusts are not public documents. Trusts and estates are also frequently used to minimize the tax impact of passing property and wealth to heirs. Without trusts, some parts of your estate may be heavily taxed before your beneficiaries are allowed to take their shares.

Trusts can also sometimes be used to minimize the tax impact on you during your lifetime: for example, by making a gift of property to your beneficiary during your lifetime, while reserving a “life estate” for yourself, or the right to use the property until your death. The beneficiary can take physical possession of the property after your death.

Trusts can be revocable or irrevocable.  They provide different levels of protection, flexibility and tax advantages.

Examples of trusts include trusts for money, stocks, bonds, IRA funds, houses (QPRT), life insurance, and many other types of property.  You can even pass a business through a trust.

Why do I need trusts and estate planning? You need trusts and estate planning for the same reason you need a will: to distribute your property and your wealth the way you want. Using trusts and estates in addition to a will allows you to better accomplish what you want to do with your property and wealth. Although a will is a set of instructions to be carried out after your death, trusts can be set up and take effect during your life, so you can actually begin to see the distribution of your property and wealth. This also allows you to see how the people to whom you want to leave your property and wealth begin to enjoy these gifts from you.

Other reasons to have a trust include (1) lack of faith in your child’s money managing abilities; (2) to avoid will probate; (3) to vary benefits and beneficiaries; or (4) to protect beneficiaries from creditors; (5) accumulate capital tax-free. To protect the property and wealth from the child’s poor money management abilities, a trustee other than the beneficiary (child) is appointed to hold and manage property in trust for the beneficiary. To protect the property and wealth from creditors, a trust called a “support trust” (for support, education and maintenance of the beneficiary) will not allow the garnishment of the trust fund by the creditors. Another way to protect assets from beneficiaries’ creditors includes spendthrift trusts. With some exceptions, creditors usually cannot touch the assets in such trusts.

I don’t have that much property or wealth, why do I need a trust? You need it to ensure that your wishes regarding your property are carried out and to minimize the tax impact of passing your property and wealth. You don’t need to have a lot of property or wealth to take advantage of a trust: some types of trusts are funded with the proceeds of a person’s life insurance policy.

Should I use a lawyer to settle a trust? Trusts are complicated mechanisms because they rely on many federal and state-specific laws and involve federal and state taxation issues. There is an astounding amount of information a person needs to know to successfully use trusts. Strict formalities must be followed for drafting and executing a trust or the trust will be invalid or unenforceable, will fail, or will allow creditors to reach the trust principal or income. Therefore, you should always speak to a knowledgeable attorney about settling a trust that will allow you to achieve the maximum financial benefit.

How frequently should I update my trusts? Irrevocable trusts generally cannot be changed, although sometimes there is room to make some updates. Revocable trusts can be changed or updated as frequently as the settlor wants. A good rule is to update or review your trusts (1) at least every five years; (2) when federal or your state’s tax laws change; (3) when events occur that affect the distribution of your wealth and property; (4) or when your wishes regarding your property distribution change. Common examples of these events are marriages, divorces, births or adoptions, or deaths of persons to whom you wanted to leave a part of your wealth or property.

3. How and when do I start Medicaid planning?

Ideally, at least five years before you are planning to apply for Medicaid in New York.  You have to anticipate your needs in five years and consider the fact that Medicare or other insurance policies may not cover your medical needs.  Otherwise, you may lose all your savings and your home to pay your hospital and care bills and have nothing left for your children and grandchildren.  Some time ago, the government instituted a program to reduce the budget deficit, so now if you are in a hospital or nursing home, you have to pay your bills if you have assets until such time that you don’t have any assets anymore.  Even if you live in your own home, the government may take it after you die as payment for medical services and home care.  This is called “Estate Recovery”.

Paying hospital medical bills or paying for nursing home care can be very taxing on anyone’s assets. However, there are legal ways to limit your exposure to hospital, nursing home, physician, home care, and other elder care bills and to protect the assets you have worked so hard to obtain. Using careful planning, you can qualify for Medicaid benefits, a joint federal/state program. Medicaid may provide for your hospital and long-term health care (including nursing home or home care) if you are over the age of 65 and/or disabled.

To avoid or limit the financial exposure of your assets to hospital and long-term care bills, it is important to take the necessary planning steps and to do so early enough for them to be effective. There is a five-year look-back period: New York State, which administers the federal Medicaid program, looks back at all asset transfers up to five years before the time you enter a nursing home to determine eligibility. Waiting too long to transfer assets to your family or loved ones or to transfer assets into a trust may make it impossible to protect your assets the most effective way.

CategoryEstate Planning

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