The Basics of Estate Planning and Advance Directives

If you want to have an effective estate plan together with advance directives, there are four essential documents you should have: a Will, a Health Care Proxy, a Living Will, and a Durable Power of Attorney. Having these four documents prepared by an experienced estate attorney, tailored to your  unique situation, lets you protect your health care decisions, provide your loved ones with access to your financial resources so they can be used for your benefit in the event you become unable to manage your affairs alone, and control the distribution of your assets on death. If your financial or family situation is complex, you may also benefit from the use of a trust, or trusts, however, most people are well served by the four documents summarized below.

  1. Health Care Proxy

A Health Care Proxy (HCP) is a simple straight forward document defined by state statute. It permits you to appoint a trusted individual to act as your health care agent only in the event you lose the ability to communicate what health care treatment you want. In order to be effective, you must sign the HCP in the presence of two witnesses who also must sign it. Only one person can act as your agent at any time, but you can provide for a secondary agent in the event your first choice cannot act. This is the document hospitals always require before they perform any procedures and it must be honored by doctors and the hospital where you are being treated.

  1. Living Will (Health Care Decisions Declaration)

A living will sets forth the circumstances under which you direct whether or not life-sustaining procedures be withheld, administered or withdrawn. By signing a Living Will, you express your treatment desires when you can no longer communicate effectively and thus remove the responsibility for making such decisions from your loved ones.

  1. Durable Power of Attorney

A Durable Power of Attorney (DPOA) is a document also created by state statute whereby you appoint an Agent who has broad or narrow powers to act on your behalf in connection with your finances. The broad powers granted by the DPOA allows your Agent to manage your daily affairs as soon as it is signed. The intent is usually that the DPOA is only to be used when you are unable to perform the necessary functions by yourself. You should be careful whom you appoint as your Agent and review the powers to decide if you want to limit them in any way.  In the event you become incapacitated and do not have a DOPA, your family will not be able to utilize your assets for your benefit, including paying for your living expenses and for any medical care you may need. In order to do these things, someone would have to petition the court to be appointed as your Guardian, an expensive and time-consuming proceeding.

  1. Will

A will is intended to specifically direct how your property, such as any jewelry, cash, securities, and real property, and all other property you own upon death. You can make outright bequests or you can set up trusts for any recipient of any part of your estate, which allows for greater control of your assets. For those with young children, a will also permits you to nominate the persons who will serve as their guardian. All wills also nominate someone to act as the executor, and as trustee if you have created any trusts. There are certain formalities specific to each state that must be followed in order for the will be valid and be able to go through the probate procedure in the Surrogate’s Court. In general, the will must be properly prepared, properly signed, and properly witnessed. This can all be accomplished by an experienced estate planning attorney.

THE ROLE OF AN EXECUTOR

The executor is the person, or persons, nominated in a Will to carry out the deceased person’s directions and requests as stated in the Will, and to perform certain obligations on behalf of the decedent and his or her estate, but can only act after being formally appointed by the court.

The executor is a fiduciary and therefore owes a duty of absolute loyalty to act as the Will directs. The executor must collect and bring into the estate all assets and property of the decedent; pay the decedent’s debts, including taxes; file the decedent’s final income tax returns and federal and state estate tax returns; account to the beneficiaries for his or her acts as executor; pay over or deliver to the beneficiaries named in the Will their legacies and bequests; and fund any trusts created under the decedent’s Will.

An executor has very broad powers to act under the law. He or she may accept additions to the estate; invest and reinvest property of the estate; keep in effect fire, rent, title and casualty insurance; and sell assets on terms that are advantageous to the beneficiaries.

While the following list is not exhaustive, proper estate administration requires the executor and/or his or her attorney to perform the following functions:

Consider Immediate Cash Needs of Family and Obtain Cash From:

*  Joint bank accounts

*  Pension/profit-sharing benefits

*  Life insurance proceeds

 

Secure Decedent’s Residence and/or Office

*  Have tangible property inventoried

*  Protect perishable assets

*  Review insurance coverage

*  Cancel credit cards

*  Take possession of checkbooks and passbooks, stocks, bonds and other assets

*  Get control of mail

*  Discontinue telephone service and other utilities when advisable

 

Commence Probate Proceeding

*  Locate Will

*  Identify any potential problems

* Identify decedent’s next of kin and their whereabouts

*  File Will with court

*  File for ancillary probate if any assets are out of state

 

Marshall the Assets

*  Search for assets

*  Arrange for safe deposit box opening, if any

*  Send letters to banks, brokerage firms, mutual funds, etc.

*  Apply for insurance proceeds

*  Transfer assets to the estate or beneficiaries

*  Examine decedent’s employment contract or deferred compensation arrangement

*  Review decedent’s financial records (e.g. tax returns, business interests)

 

Determine Cash Requirements of Estate

* Notify and pay legitimate creditors

* Pay funeral expenses

* Make preliminary estimate of estate and income taxes to be paid

* Consider liquidity problems of assets

* Open estate bank accounts

 

Determine Estate Tax Liability, if any

* 9 months after death – State and Federal payments of estate taxes are due and must file returns or an extension to file

* Consider alternate valuation of assets to reduce estate taxes

 

Administration of Estate

*  Collect all income and other money due decedent or estate

* Review securities owned by decedent

* Analyze market and investment trends

* Keep detailed record of all income, expenses and estate transactions

* Examine claims against estate and determine their validity

* Pay debts and legacies (the law in New York requires payment not later than 7 months from the date the executor was first appointed by the Surrogate’s Court)

 

Filing Tax Returns

*  File New York State Estate Tax Return if estate is $4,187,500 or greater

* File federal estate return if estate is $5,450,000 or greater

* File income tax returns for decedent

* File income tax returns for decedent’s estate

 

Estate Planning for Everyone

All too often when an accident or sudden illness debilitates a loved one, their family is left trying to figure out how to keep them from losing everything they’ve worked so hard for. This is why it is my firm belief that basic estate planning, asset preservation, and planning for a health catastrophe or death, is something that everyone should consider seriously.

Personal Estate Preparations

 Some estate planning can be completed on your own. The simplest form of estate planning is to have a bank or brokerage account that is either:

  • In joint names with right of survivorship with another person;
  • “In trust” for another person;
  • Payable on death to another person; or
  • Names someone as a beneficiary (as in a life insurance policy and IRA).

This course of action is the cheapest and the easiest way to direct assets upon your death and, although it may not be appropriate in every situation, in certain cases I would recommend it.

Additionally, there are 3 simple steps that everyone should take to save your loved ones’ time, money and unnecessary anguish after your death. The person of your choosing should know:

(1) Your financial set-up in case of an emergency;

(2) A list of where the bank books, insurance policies, deeds or mortgage papers are kept, which should be in an easily accessible place (not a safe deposit box); and

(3) The location and type of your health and/or disability coverage

Legal Documents For Estate Planning

 A method of leaving assets on death is by having a Will.  It can be simple or complex, depending on your circumstances and goals, and the bequests can be outright or in trust.  If you have a Will, it must be probated in the local surrogate’s court which results in probate fees paid to the court, the Will becomes a public document, legal fees often have to be paid, and there is some time involved to have the personal representative appointed and to make the necessary transfers.

Another way to leave assets on death is to use a trust or multiple trusts.  You can use testamentary trusts, which are created by a Will, living trusts (also known as inter vivos trusts) which can be irrevocable or revocable, Medicaid planning trusts, insurance trusts, marital trusts, charitable trusts, credit shelter trusts, etc.  Each person’s situation is unique. There are certain advantages to using trusts, both financially and in terms of asset control. It can also avoid involving the Courts.

If you decide not to create a Will or trust, upon your death the State where you live will decide who will administer your assets and to whom they will go.

In addition to planning for the transfer of your assets on your death, there are a number of very important documents that affect you while you’re alive that everyone should have.  The documents are:

  1. Health care proxy
  1. Living Will
  1. Durable Powers of Attorney, comprehensive long form

Together, these documents will ensure that the person of your choosing will make the medical decisions that you want and will avoid a guardianship proceeding by appointing your trusted relative or friend to act as your Agent under the power of attorney.  The powers can take effect immediately or upon the happening of a certain event or circumstance.

Contact us at 914-831-6250 or jgruner@grunerlaw.com to find out how an estate planning attorney can help you accomplish your goals.