Below are some of the most frequently asked questions. Click
on a question to see the answer.
Estate Planning Basics
1. What
if I do nothing?
2. I own assets with other family
members. Is this okay?
3. What is a last will and testament?
4. I’ve heard a lot about trusts. What can they
do for me?
5. Are there different types of trusts?
Tax Basics
1. What
kind of taxes will I have to pay when I die?
2. What assets are included as part
of my taxable estate?
3. Should I be planning to avoid gift and estate
tax?
4. Are there any transfers (gift or inheritance)
that are tax free?
5. If I'm married, what tax planning can I do to
save on taxes? 6. I am single. Isn't there anything
I can do to save on taxes?
Disability Planning Basics
1. What is disability planning?
2. What can I expect the cost of
long term care to be?
3. Will I be able to rely on Medicare to pay for
long term care costs?
4. What about long term care insurance?
5. Will Medicaid pay for my long term care?
6. Suppose I get sick. How can I be sure my health
care wishes will be respected?
7. What is a living will?
8. What is a durable power of attorney?
9. Are there any alternatives to a power of attorney
to provide substitute financial management?
10. Suppose I do not execute a durable power of
attorney or a revocable trust and I become incapacitated. What happens
then?
11. I just read in the paper that the law may change.
12. What do I do now?
Estate Planning Basics
A. When a New York resident has no plan for
distributing assets at death, the person dies intestate. When an individual dies intestate, the court appoints an
administrator to administer the assets and state law determines how the assets
are distributed. What this means is
that New York State ultimately decides who will get your assets and in what proportion,
whether or not it is consistent with what you would have wanted.
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Q. I own assets with other family members. Is this okay?
A. Assets held by an individual in joint accounts or “in trust for” accounts, pass directly to the beneficiary by operation of law. Assets with named beneficiaries such as insurance policies or retirement benefits are also treated in the same way. To effectuate the direct transfer, varying paperwork may be required. For example, in order for a joint owner of a bank account to access the account on the death of the other joint tenant, a tax waiver may be necessary from the state if funds exceed $30,000 in any one bank. A death certificate must also be given to the bank.
In some instances, inheritances by
operation of law can be very convenient.
However, this method of transferring assets to heirs does not allow for
special planning such as tax reduction or trusts for heirs. Also assets held jointly may result in
unintended inheritances.
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Q. What is a last will and testament?
A. A last will and testament (“Will”) is a document that directs who is to inherit estate assets and in what proportion. A Will also designates the executor who is responsible for administering the estate. The job of the executor includes filing tax returns, paying creditors and making distributions to the beneficiaries. Considerable planning can be accomplished with a Will. For example, a Will can include tax saving trusts and trusts for the protection of disabled loved ones or those who have difficulty managing assets.
To be effective, New York State law
requires that a Will be submitted for probate.
This is the process by which the Court validates the Will and authorizes
the executor to act on behalf of the estate.
Following probate, the estate administration proceeds with identifying,
gathering and valuing the assets, paying all creditors, filing the appropriate
tax returns and distributing assets according to the directions set forth in
the Will.
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Q. I’ve heard a lot about trusts. What can they do for me?
A. A trust is an agreement that can provide for the management and distribution of assets during life and/or after death. Assets owned by the creator of the trust are transferred over to the trust. Trustees are appointed by the trust’s creator to manage the assets according to the directions given in the trust agreement. A trust agreement designates who will use the trust assets during the life of the creator and who will inherit the assets owned by the trust at the death of the creator or at some other specified point in time.
Trusts created during life do not
require court involvement in the form of probate because the trustees are given
the legal authority to act when the trust document is executed. On the other
hand, testamentary trusts are trust agreements
that are part of a Will and do require court involvement. Regardless of whether the trust is created
during life or within a Will, where a trust is used to distribute assets at the
death of the creator of the trust, trust assets, just like estate assets, must
be valued, creditors paid and tax returns filed before distributions to the
beneficiaries can be made.
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Q. Are there different types of trusts?
A. There are many types of trusts, each
suitable for a different purpose. Some
of the most commonly used trusts are the revocable living trust, irrevocable
Medicaid trust, supplemental needs trust, irrevocable life insurance trust,
credit shelter or bypass trust, qualified personal residence trust, charitable
remainder or annuity trust and spendthrift trust. Certain of these trusts are created during life and stand
alone. Others are known as testamentary
trusts and are created in a Will.
Testamentary trusts don’t take effect until death. Trusts are complicated and must be tailored
for each individual situation. A
consultation with a knowledgeable attorney will help you to explore your
options.
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Tax Basics
Q. What kind of taxes will I have to pay when I die?
A. New York residents are responsible for
the payment of both State and Federal gift and estate taxes. Estate and gift
taxes are separate and above the taxes paid on income. Until 2004, estate
or gifts tax is due unless or until the total of lifetime gifts combined with
the assets remaining in the individual's estate exceeds $1,000,000.
The Economic Growth and Reconciliation Act of 2001 ("the Act") provides that the
estate tax level will rise to $1,500,000 in 2004 and continue to gradually rise
until eliminated entirely in 2010. The gift tax level will remain at
$1,000,000. The Act makes no provision for 2011. The law must be
re-enacted in 2011 if Congress chooses to continue with the elimination of the
estate tax. If Congress fails to take action, the level for estate and
gift tax will return to $1,000,000 in 2011.
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Q. What assets are included as part of my taxable estate?
A. All
assets that you own at the date of your death are part of your taxable
estate. This means that your home, even
if jointly owned, IRAs, 401Ks, insurance policies and jointly owned bank
accounts are all part of your taxable estate.
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Q. Should I be planning to avoid gift and estate tax?
A. Under the Federal tax code,
gifts and estates over the applicable levels (see
above), are taxed at a steeply graduated rate which begins at 37% and reaches a
top rate of 50%. The top tax rate is scheduled to be gradually reduced to 35%
in 2010. If you own assets in
excess of $1 million, you should give serious thought to planning to
avoid or reduce gift and/or estate taxes.
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Q. Are there any transfers (gift or inheritance) that are tax free?
A. Yes, there are certain exclusions from gift tax. Each individual has the right to gift $11,000 in any calendar year to any number of persons. For example, if you have two children who are married and each one of those children has a spouse and three children, you could gift $11,000 to each of the ten family members per year. In this way, you could gift $110,000 per year with no gift tax consequences and reduce your taxable estate. Many people make these $11,000 tax exempt gifts for the purpose of reducing the assets in their estates, thereby reducing their eventual estate tax liability.
Other gifts excluded from gift tax are unlimited payments on behalf of another person made directly to a provider of educational services for tuition or to a provider of medical services. An individual can reduce his total assets and eventual tax liability by paying a grandchild's college tuition, or nursery school bills directly to the educational institution. Hospital or doctor bills paid by the individual directly to a hospital or doctor on behalf of another person also carry no gift tax consequences.
The
most significant exception to gift and estate tax is the marital
deduction. The marital deduction allows
each spouse the right to give an unlimited amount of assets during life or
after death to the other spouse who is a U.S. citizen without any estate or
gift tax consequences. Although this is
often of great benefit, it is not always the best plan to take full advantage
of the marital deduction. It may leave
the surviving spouse with a very large taxable estate.
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Q. If I'm married, what tax planning can I do to save on taxes?
A. For married couples, credit
shelter trusts, also known as bypass trusts, can be very helpful. Even
though married couples have a right to an unlimited marital deduction, a
couple's assets are not necessarily protected from hefty estate taxes when the
second spouse dies. Married couples with total assets over the amount that
can pass free of estate tax should consider the use of a credit shelter trust to
avoid Federal estate taxes. A credit shelter trust is generally included
in the Will or revocable trust of each spouse. At the death of the first
spouse, a sum equivalent to the amount that can pass free of estate tax at the
date of death can fund this trust. These funds do not go to the surviving
spouse, but to the credit shelter trust and therefore, pass tax free in the estate
of the first to die spouse. The trust
can be structured so that the surviving spouse receives income from the trust and
can access trust principal at the discretion of the trustees. The provisions of the trust can vary, within
limits. The credit shelter trust is
complex. Before implementation of such
a plan, or other available tax saving devices, you should have a thorough
discussion of the available strategies with a knowledgeable attorney.
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Q. I am single. Isn't there anything I can do to save on taxes?
A. There
are numerous other opportunities to save on gift and estate taxes such as
insurance trusts, qualified personal residence trusts, family limited
partnerships or gifting programs. A
consultation with a knowledgeable attorney will allow you to explore your own
unique options. And don't forget the non-taxable gifts of $11,000 per
person per year discussed above.
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Disability Planning Basics
Q. What is disability planning?
A. With
improved medical technology comes the possibility that at some time in the
future we might need long term care.
Disability planning can include:
paying for long term care, the execution of advance directives such as a
health care proxy or living will to assure that health care wishes will be
respected, and a plan to provide for someone to make and implement financial
decisions upon incapacity.
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Q. What can I expect the cost of long term care to be?
A. Nursing
homes in the New York metropolitan area range from $80,000 to well over $100,000, per
year. Full time or live-in home care
can cost even more. This does not
include the cost of maintaining the family home while the ill person is in the
nursing home or the financial support required for a spouse who remains at
home.
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Q. Will I be able to rely on Medicare to pay for long term care costs?
A. No. Medicare pays for long term care only in
very limited circumstances for a short period of time.
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Q. What about long term care insurance?
A. Long
term care insurance can be purchased to cover care at home or care in a nursing
home and should be considered by those who can afford it and who qualify
medically. There are a number of
different types of policies offered to the consumer with a choice of benefits. In choosing a policy, an individual should
seek coverage which includes both nursing home and home care, inflation
protection, guaranteed renewability and reliability of coverage. Also very important is an understanding of
what events or physical conditions will trigger coverage. You might want to confer with an elder law
attorney who can help you to choose the best policy for you.
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Q. Will Medicaid pay for my long term care?
A. In
order to have Medicaid pay your long term care costs, you must meet certain
eligibility standards regarding resources and income. With careful planning, you can become eligible for Medicaid
without spending down all assets. This
is a complicated topic which requires an individualized consultation with an
elder law attorney.
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Q. Suppose I get sick. How can I be sure my health care wishes will be respected?
A. You
can execute a health care proxy, a document which appoints a health care agent
chosen by you to make health care decisions for you according to your
wishes. This document is governed by
the New York State Health Care Proxy law.
The instrument becomes effective only in the event that you become
incapacitated and can no longer make your own medical decisions. A health care agent has the power to make
all medical decisions for you, such as which doctor will treat you, where you
will receive treatment and what types of treatment you will receive. The heath care agent is also authorized to
make end of life decisions for you.
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A. A
living will is an advance directive in which you write out specific wishes in
advance of your inability to make medical decisions. In the document, you try to anticipate future medical
circumstances and set forth what medical treatments you would wish administered
or withdrawn under those circumstances.
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Q. What is a durable power of attorney?
A. A
power of attorney allows an individual (the principal) to designate another
person (the attorney-in-fact or agent) to act on behalf of the principal in
specified financial matters. A
“durable” power of attorney allows the agent to continue to act for the
principal after the principal has become incapacitated. All powers of attorney end on the death of the
principal. It is often helpful to customize the power of attorney for estate planning
or Medicaid planning. This
customization requires thought as to your individual and unique circumstances.
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Q. Are there any alternatives to a power of attorney to provide substitute financial management?
A. A
revocable trust may be used for financial management. A revocable trust gives the trustees legal title to the assets
held by the trust. The trustees can
make all decisions regarding assets held by the trust for the benefit of the
creator of the trust.
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A. If
you become incapacitated and have no plan in place for management of your
finances, your family or some other concerned person can make an application to
a court to have a guardian appointed for you.
This is called a guardianship proceeding. The guardianship proceeding can be expensive and take much time
to accomplish. In addition, your
finances and personal life become part of the public court record and court
determinations may not be what you would have wanted. Guardianships however, are sometimes necessary to accomplish
estate and disability planning when people fail to do effective planning. When needed, the court can appoint someone
to access an incapacitated person’s assets and take charge of property
management and personal needs of the incapacitated person.
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Q. I just read in the paper that the law may change.
A. Laws
change all the time and can affect the intended implementation of your
plans. It is for this reason you should
update your estate and disability planning periodically.
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A. Talk to your family, then make an appointment at Raskin & Makofsky to discuss your own unique concerns with us. Together we will craft a solution that you feel comfortable with.
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proud of our legal expertise and the caring service we provide our clients...
the next step is yours.
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