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Creating a will and any necessary trusts can reduce your tax burden while providing for your family and ensuring that your wishes are carried out after your death. Littman Krooks can help you set priorities and put the essential documents in place.
Creating a Will
You need a will to direct the distribution of your assets. When you create a will, you decide who receives what, and you also control factors such as who the executor of your estate will be.
If you die without a will, state law determines how your estate will be divided, and it may not be what you would have chosen. New York State’s law of intestate succession provides a single set of rules that are followed in every case of a person who dies “intestate,” or without a will. These rules are the government’s attempt to distribute a deceased person’s assets in a sensible way, to their close family members. However, this “one size fits all” method does not allow you to choose what will work best for your family’s unique needs.
The first step in the process of creating a will is to take a thorough inventory of your assets. You will need to know the fair market value of any real estate you own, and you should also consider how certain resources are titled. For instance, if you have an account with a designated beneficiary, those funds will pass directly to that individual, outside of your estate.
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Get Started With Your Will
Your estate plan should be coordinated with your retirement plan.
It is crucial to have not only an inventory of your current assets, but also a projection of how your investments and your spending during retirement will affect your estate. Your own potential long-term care needs should also be considered. When you have an estimate of what you will need during your lifetime, you can create a will that directs the distribution of your remaining assets to your heirs and beneficiaries. Consulting with an experienced estate planning attorney is an indispensable part of the process, as we are aware of the most common pitfalls and can present you with the best solutions to carry out your wishes.
Making Use of Trusts
There are many reasons why you may wish to include one or more trusts in your estate plan. While a will provides for direct distribution of your assets, a trust is a way to hold property for the benefit of another person. The creator of the trust designates a person known as the trustee to manage and distribute the assets for a beneficiary.
When a trust is created by a will, it is known as a testamentary trust. Your will can direct that some assets be distributed directly, and others be put into trust. This may be useful when you have heirs who cannot manage the money on their own, for instance because they are too young or because of a disability. In your will, you can instruct a trustee to manage funds responsibly and make appropriate distributions to the beneficiary.
Trusts can also be created during your lifetime. A revocable living trust can be formed while you are alive to allow a trusted person to manage your affairs, even if you become incapacitated. You can also place your major assets in such a trust, so that your trustee can distribute them according to your instructions directly from the trust after your death, without the need to wait for the process of probating your will.
Establishing trusts for different purposes
Trusts can take different forms and can be used for several purposes. Special needs trusts can provide for a family member with a disability while protecting their eligibility for public benefits. Asset protection trusts can keep resources safe from future creditors. Spendthrift trusts safeguard assets from young adults who have not yet developed good money management skills. Bypass trusts can help wealthy New York families keep the state estate tax exemption of the deceased spouse for the surviving spouse. Charitable remainder trusts take advantage of tax deductions to make an irrevocable charitable gift, while also benefiting a non-charitable beneficiary.
Reducing Estate Taxes
Families with significant wealth may be affected by the estate tax and will naturally seek strategies to reduce their tax burden.
The federal estate tax exemption amount is $11.7 million per person in 2021, and it is portable from one spouse to another, so a married couple can shield $23.4 million from the tax. Estates above that amount are taxed at 40 percent.
New York State has its own estate tax. The exemption amount is currently significantly less than the federal exemption amount. Two important aspects of New York’s estate tax are that there is no spousal portability, and the exemption amount is a “cliff,” meaning that if the estate is more than 5 percent of the exemption amount, the entire estate is taxed, not just the amount above the exemption amount.
The estate planning attorneys of Littman Krooks stand ready to help you protect your family’s financial future.
New York Estate Tax Considerations
There are several strategies that can be employed to reduce your family’s estate tax burden.
Bypass trusts can address the portability issue with New York’s estate tax. Gifts made during your lifetime are a good way to provide for your loved ones while avoiding taxes. You may make annual gifts of $15,000 in 2021 to as many individuals as you like, without them counting toward your lifetime gift and estate tax exemption amount.
When you take the time to put an estate plan into place, you are also making things easier for the executor of your estate, and for your whole family.
The estate administration and probate process can be complicated. If you are in the position of being named executor of someone’s estate, then you may require assistance navigating the system.
In New York State, there is a Surrogate’s Court in each county, which handles the administration of estates for people who had their primary residence in that county when they died. When a person dies with a will, someone must ask the Surrogate’s Court to approve the will; this process is known as “probate.” The will is filed with the court by the proposed executor and interested parties are given proper notice, so that any challenges to the validity of the will may be heard. If the will is approved, the court will issue letters testamentary, which permit the executor to take legal title of the deceased person’s assets. The executor must pay any debts of the estate, and can then begin distributing the assets according to the instructions in the will.
Probate vs. Non-probate Assets
During the estate administration process, the distinction between probate and non-probate assets is essential. Certain assets, such as accounts with a designated beneficiary, may pass directly to that beneficiary without being part of the probate process.
If a revocable living trust is used, then many of the deceased person’s assets may already be in the trust, and the trustee can distribute them without waiting for the probate process. The trustee may also be the executor of the estate, and there may be what is known as a pour-over will, which states that any remaining probate assets should be transferred to the trust for distribution according to its terms.
If a person dies without a will, then the “closest distributee” can file for administration of the estate and this person is known as an “administrator.” A spouse has the right to administration over the children of the deceased person, but if there is no living spouse, then the children have equal rights to administration. In this process, the Surrogate’s Court will issue letters of administration rather than letters testamentary. Handling the administration of an intestate person’s estate can lead to complications, which is another reason why proper estate planning is so important.
Knowledge and Experience
Estate planning and estate administration should not be undertaken without the advice of experienced professionals. The estate planning attorneys of Littman Krooks stand ready to help you protect your family’s financial future.
When you consult with our estate planning attorneys, we will take the time to learn about your wishes and needs, and we will bring a wealth of experience to bear in crafting an estate plan that helps you avoid conflict, provide for your heirs, and minimize taxes.
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