The “Basics” of Estate Planning

Lawrence Cohen will help you thoughtfully evaluate alternatives and, where appropriate, assist with implementation.

Will

Under New York law, a will is a written document that takes effect after your death. Although wills can always be changed before you die, it will not be valid if the person who executed the prior will now suffers from substantial lack of mental capacity, dementia or Alzheimer’s Disease. A will can provide for the following: how your property and assets (also called your “estate”) should or should not be given out; what types of property and assets to give out (e.g. personal property, real estate, cash or everything else you own, also known as the “residuary”); who will be in charge of giving out your property after your death (e.g. the Executor); how any remaining bills/taxes should be paid; or who should care for your minor children or pets.

Under New York law, any person who is over 18 and who is “of sound mind and memory” can make a will. This is called “legal capacity.” Having legal capacity to make a will means that at the time you make the will:

  • You understand what you are doing by making and signing a will and deciding how to divide up your property;
  • You are aware of the kind of property and value of the property you are including in your will; and
  • You know and understand your relationship to the people you are giving your money or property to.

A will does not control the distribution of assets that are jointly held with the right of survivorship, since at the time of death that property automatically pass to the survivor. In addition, beneficiary designations will control how IRA and other retirement plan assets are distributed.

Trusts

Can be established during your lifetime or created under your will at the time of your death. They are commonly used to control how funds are to be distributed, managed and used during your lifetime (including during periods of incapacity) for your benefit and/or after your death for your chosen beneficiaries. The assets of a trust created during your lifetime often avoid probate. Certain types of trusts can also remove assets, and appreciation on them, from your taxable estate.

Durable Power of Attorney

Allows the individual you designate to act on your behalf in handling specific duties of your choosing such as paying bills or making decisions regarding investments or real estate. It represents one very important method of dealing with incapacity. The Power of Attorney is “Durable” meaning it will be unaffected by the principal’s later loss of capacity. If you become ill or incapacitated, you will need someone who is empowered to handle your business affairs, pay your bills or manage your assets.

Living Will

Communicates your wishes regarding the medical treatment you wish to receive or reject under specific conditions and typically outlines the conditions under which extraordinary measures to prolong life should not be taken. It provides specific instructions as to procedures you want or do not want, and it serves as a solid, generally accepted evidence of your wishes to guide your health care agents, and support them in the case of possible disputes. A Living Will has no legal force to direct action on its own, and cannot be used to appoint a health care agent. Therefore, a health care proxy must be done in order to designate an agent.

Health Care Proxy

Appoints a proxy or agent to make medical decisions for you if you become incapacitated or when you are no longer able to make decisions or communicate your wishes. It allows the individual you designate to make decisions on matters that may not be specifically covered in a living will. It is similar to a Power of Attorney, but is solely for medical decisions. A principal can give an agent as much or as little power as he or she chooses. Unless specifically limited, a health care agent stands in the principal’s shoes and can take any action the principal could take.

Life Insurance

Often used to provide cash flow to offset estate taxes, equalizes an inheritance or minimize the income taxes paid by a trust. Life insurance owned by and payable to a properly structured trust is excluded from your taxable estate and the proceeds of the policy are not subject to income tax.