In addition to the selection of either a Will or living trust, a comprehensive estate plan should include a Health Care Proxy and Living Will (sometimes within the same document) and a durable general Power of Attorney.
The Health Care Proxy and Living Will address the termination of life support in the event of a terminal illness or injury, and who will make health care decisions for you, if you cannot. By executing a Living Will you can inform your family and the attending physician of your desire not to receive life support or to have heroic measures taken to prolong your life. Or it can be used to clearly state your desire as to the medical care to be provided. That is, you may want measures taken to prolong your life. A Living Will is basically a health care declaration.
The Health Care Proxy appoints an agent to speak for you. It is designed to entrust a loved one or close friend with the legal authority necessary to make medical decisions (including termination of life support) in case you are unable to personally communicate with the doctors.
By executing a Power of Attorney, you may grant to someone the legal authority to handle your financial transactions (pay your bills, manage your finances, and sometimes, plan for Medicaid eligibility). A Power of Attorney is only valid during your lifetime. If you die, the Power of Attorney automatically terminates. The Power of Attorney is intended to serve as a safety net to the estate plan to protect against lifetime financial emergencies. A Power of Attorney can postpone or possibly avoid a guardianship if you become mentally incapacitated.
LONG TERM CARE OR MEDICAID PLANNING
Long term care planning, also called Medicaid planning, involves the protection of assets from potential nursing home expenses. The best time to consider Medicaid planning is at least 5 years prior to nursing home admission. While no one has a crystal ball to make the 5 year determination, we typically assist clients in their late 60s or early 70s with long term care planning through the use of irrevocable trusts. Irrevocable trusts are never truly irrevocable, as New York law allows an irrevocable trust to be changed or terminated with the written consent of those beneficially interested in the trust (the creator of the trust and the beneficiaries).
Crisis planning is also available when a person has not adequately planned more than 5 years prior to a nursing home admission. Even after a person has been admitted to a nursing home, there is a strategy that allows us to save approximately ½ of a person’s assets from the nursing home cost. This strategy can only be implemented after a nursing home admission; and takes into consideration the private pay rate of the facility, the person’s fixed income (Social Security, pension and retirement account required minimum distributions), as well as any gifts made within the 5 prior years.
ESTATE TAX PLANNING
The federal estate and gift tax exemption (the amount a person could pass without paying federal estate and gift tax) is $11.4 Million per person and indexes for inflation. In addition to the $11.4 Million estate and gift tax exemption, each person may gift up to $15,000 annually to as many recipients as he or she chooses without even filing a gift tax return. New York States does not have a gift tax, but does have an estate tax that brings back gifts made within 3 years prior to death as part of the estate tax calculation.The New York State estate tax exemption is tied to the federal estate tax exemption under 2014 law (currently $5.74 Million and indexes annually with inflation).Under the federal rules, “portability” permits spouses to use each other’s exemptions, meaning that a married couple can fully utilize $22.8 Million of federal exemption. New York does not recognize portability, so planning must be implemented for each spouse to use both spouses’ New York exemptions. Additionally, New York’s estate tax law requires estates valued at 105% of the exemption to lose the exemption in its entirety with New York estate tax calculated on the full value of the estate (essentially meaning there is no state estate tax exemption for these estates).
To sum it up good estate planning takes into consideration not only pass through of assets but possible life scenarios prior to death. A good and comprehensive estate plan will also take into account tax mitigation strategy and potential need for flexibility prior to death. To schedule a free consultation with an experienced estate planning attorney please call our office.
