We help seniors meet the challenges of getting older. Income often declines after retirement while medical and living expenses rise. Depending on your health you may need a home health aide or a place in a living facility, and you may worry whether there will be enough money to maintain your lifestyle and anything left for your family.
A New York estate plan addresses both concerns: it lets you maintain a comfortable lifestyle while preserving your wealth for the next generation of your family. The tools are a will, a trust where one is warranted, and the documents that keep you in control if you become unable to manage your own affairs.
Every Senior Should Have a Will
If you do not have a will, the court distributes your property under New York’s intestacy laws. Your estate is still divided only among your relatives, but the proportions will most likely differ from what you would have wanted. You lose the opportunity to leave out particular relatives, and children may gain access to large sums of money on turning 18.
Without a will, your family can end up inheriting attorneys’ fees, estate taxes, confusion and feuds. If you leave behind a business, real estate or investments that would be a loss to sell in current market conditions, the court might force your estate to sell them. If you leave an asset that requires management, the court might direct your heirs to manage it jointly without defining anyone’s role. That kind of co-ownership often turns into feuding over money and control, followed by years of litigation and tens of thousands of dollars spent on lawyers.
A will lets you select your executor, the person who handles your estate. You would choose someone you trust, probably a relative who is familiar with your property. Without a will, the family may disagree over whom the court should appoint, which can lead to probate litigation.
Making a will is also the right time for tax planning. Calculating your estate tax liability now, and making sure the estate will have liquid assets to pay it, can save your heirs tens of thousands of dollars. Otherwise the probate court may force your heirs to sell part of their inheritance to pay estate taxes.
A Trust Is the Best Tool for Protecting Your Assets
A trust can give a senior Medicaid eligibility, protection from creditors, probate avoidance, privacy, continuity of income, planning for mental disability and estate tax savings. Here is how each of those works.
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Medicaid, creditors and privacy
Several types of trust can help an individual qualify for Medicaid, including home care and nursing home coverage, so that assets are not spent on long-term care and can pass to the family. You can learn more about Medicaid trusts on our dedicated page. A properly executed and funded irrevocable trust also shields its principal from creditors and lawsuits. And because probate court proceedings are public record, anyone can find out the extent and location of your assets when you die; a trust adds a layer of privacy.
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Avoiding probate, in New York and elsewhere
Probate can be expensive and slow. Property transferred to a trust does not have to go through it. If you own property in more than one state, a trust also avoids ancillary probate: on your death the property passes under the trust and no multi-state Surrogate’s Court proceedings are needed. A trust provides continuity of management as well, so that income and use of assets are not interrupted by your death or disability and your estate or business is not subject to restrictions imposed by the probate court.
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Protecting your beneficiaries from themselves and from others
You may not want your assets to go to a child’s spouse in a divorce or as an inheritance, or to a child’s creditors in a lawsuit or bankruptcy. A trust can keep what you built in the blood family. It can also set limits on how a beneficiary spends, for example by releasing amounts only at specified ages, which protects inexperienced or irresponsible children. Minor children and grandchildren cannot manage funds at all; if they inherit outright, their parent or guardian cannot reach the money without a lengthy court proceeding and heavy oversight, with the court endorsing every check and requiring multiple reports each year. A trustee avoids all of that. If a loved one is disabled and on means-tested programs such as Medicaid or SSI, a Special Needs Trust (also called a Supplemental Needs Trust) preserves their eligibility so the government continues to pay for their care.
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Disability planning and estate taxes
A trust lets you select a trustee, someone you trust to manage your estate if you become unable to do so yourself. Read more in Planning for Disability. Trusts can also legally save a substantial amount in estate taxes. Read How to Avoid Estate Taxes to learn about the credit shelter trust and the life insurance trust; a QTIP trust or a qualified domestic trust (QDOT) for the benefit of your spouse can further those goals.
A Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT) maximizes the tax advantage per charitable dollar. A Grantor Retained Annuity Trust (GRAT), an Intentionally Defective Grantor Trust (IDGT) or a Unitrust removes appreciation of your property from your estate. Read more in Advanced Estate Planning.
Revocable or Irrevocable?
A revocable trust does not offer enough protection to count as an asset protection tool. Because the person who set it up keeps a great deal of control, and can even revoke it entirely, the law treats the assets as still belonging to that person. Only an irrevocable trust works for asset protection.
Revocable trusts are still used for many purposes. They are flexible: you can change or revoke them at any time and for any reason, and the trust becomes irrevocable on your death, at which point it delivers many of the benefits described above, such as probate avoidance and privacy.
An Irrevocable Life Insurance Trust (ILIT) is set up to own a life insurance policy so that when the insured dies the proceeds are not part of the taxable estate. The insured can still fund the premiums through a “Crummey gift” to the trust. Where an existing policy is transferred, the trust is treated as owner after three years, so that the estate does not pay estate tax on the proceeds and any appreciation in the policy stays out of the estate. The downside is that the trust cannot be changed once it is irrevocable; the upside is no estate tax on the proceeds if it is set up correctly. These trusts must be drafted carefully to meet exacting IRS requirements.
Documents That Keep You in Control
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Power of attorney
A power of attorney gives another person, your “agent”, legal authority to act on your behalf. You choose someone you trust, such as a child, and a revocable power of attorney lets you change your agent at any time. Without one, your family may have no choice but to ask the court to appoint a guardian to make financial or medical decisions for you. That procedure is expensive and time-consuming, and the court may appoint someone you would not have chosen.
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Living will
A living will states which life-sustaining measures, if any, you want taken when you can no longer direct the doctors. Do you want a do-not-resuscitate (DNR) instruction? Does your religion dictate a preference? What should happen to your organs? These and similar questions are answered in the living will.
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Health care proxy
A health care proxy names the person you want to make health decisions for you when you cannot make them yourself. It is, in effect, a power of attorney for healthcare decisions.
Talk to Us
If you would like help putting together a plan that maintains your lifestyle and preserves your wealth for the next generation, call us at 212-233-1233 or email [email protected].
