It’s standard in my business to think that many folks don’t address estate planning because they don’t want to think about their own mortality. But the other day, when a single middle aged woman told me she didn’t have a Will, I learned something pretty astounding. She believed the “government” would get her money so she didn’t think she needed one.
W R O N G.
When you die without a will, the law of your state of residence determines how your assets will pass. An administrator is appointed and that person carries out the business of collecting your assets and distributing them to your next of kin – as the state law generally prescribes. So there is a “default setting” even if you don’t have a will.
But it is so much easier for all involved if you do have a will. Even the process of selecting an administrator can be a nightmare if your family members don’t get along, or you have minor children. So it is much better to plan – even if it is a simple one!
Documents You Need
As part of every estate plan my firm does for a client, there are four essential documents in the package. As you will see, a will alone is not enough. Things can happen in life that leaveus unable to manage our own affairs – even as we continue living. Healthcare documents and a durable power of attorney are essential to appoint others you trust to make decisions for you.
Last Will and Testament:
- This spells out your wishes concerning how your assets will pass at your death. It does not affect all assets. For example, it has no effect on:
- Property which is jointly titled by a deed.
- Life insurance which specifies a beneficiary.
- Retirement, 401(k) or IRA benefits which pass per a beneficiary designation form.
Health Care Proxy:
- Appoints another to make health care decisions for you if you are unable to do so. It can come into play if you are in a car accident or something unexpected goes wrong or happens during even planned surgery.
Living Will (aka DNR):
- Designates another to make end of life decisions for you if you cannot. This is the document which tells the doctor when you want the plug pulled or that you want maximum pain relief before you go.
Durable Power of Attorney:
- Appoints another as your “agent” aka “attorney-in-fact” to manage your financial and other affairs in the event of mental disability. This is an incredibly powerful document that can help family members manage your affairs if you are stricken with Alzheimer’s, Dementia or some other disease which makes you unable to manage your affairs. This document alone can avoid a guardianship or conservatorship proceeding to appoint someone to manage your affairs. The contents of this document in New York are prescribed by state law.
Estate Tax Planning
Tax planning doesn’t affect everyone, because you need to be in a “taxable” estate tax position before it matters. But you need to know if you are affected, so that you can plan.
Here are the nuts and bolts of when tax planning kicks in:
Both the federal government and New York State impose an estate tax on assets you pass at death. Under the federal estate tax system, you can make up to $5.49 million (in 2017) in gifts during life (and at death) and not pay estate tax. In New York State, the amount exempt from tax is only around $3.0 million (in 2015).
Under federal and state rules, there are some breaks:
- Married folks can give an unlimited amount of money/assets/stuff to each other and not pay estate tax. There is an “unlimited marital deduction.”
- Exemptions are available for gifts to charity.
- The New York rules are different in some respects. For example:
- Under federal law, If you are married and don’t use up your full exemption, your surviving spouse can use it to shield assets from estate tax in his/her estate. That’s not true in New York.
- In New York, if you exceed the exemption amount by even a small bit, the whole estate becomes subject to New York estate tax.
When taxes do kick in, they are hefty. The federal estate tax rate is 40% and New York State has a graduated rate up to about 16%. In my experience, tax planning is especially important for single people who cannot take advantage of the “unlimited marital deduction” and for anyone who has wealth levels that would subject them to tax.