What is estate planning?

Estate planning is an analytic exercise that starts with a review of your assets, family situation, business, and liability exposure. Everyone needs estate planning and it does not have to be complex. Estate planning is a process that has an end result – you are left with a set of structures, which are documents in written form, which will either come to effect immediately (lifetime planning) or will come to effect when you pass away (testamentary planning)or become incapacitated (disability/incapacity planning). The written form can be as easy as a Will, health care proxy, power of attorney, living will and designation of agent to control disposition of remains. It can be as complex as having several trusts, family partnerships, charitable trusts, grantor retained annuity trusts, partnership freezes and/or LLCs.
  • What is Will:

    A Will is a document that memorializes your testamentary wishes (i.e. wishes expressed through a Will to come to effect at death not during lifetime). It does not have to be complex but it has to clearly express your desires, it has to be executed according to the requirements of the state law (for example, in New York a Will has to be witnessed by no less than two witnesses and the testator has to proclaim such document as his or her Will in the presence of said witnesses).

    The Will has to appoint an executor. An executor is a person who takes care of your estate when you are gone. A good Will appoints successor executor in addition to a primary executor, and also addresses a situation of what happened if no executor nominated in the Will can act as such executor. Be aware of the state requirements for who can act as executor. For example, in New York, a convicted felon cannot serve as executor.

    The Will has to cover various contingencies to be a functioning document. This means that it needs to address issues like predeceased beneficiaries and fiduciaries (executors/trustees/guardians). Theoretically, unless you want to take someone out of your Will or add someone new to your Will, a Will should not be changed when someone dies because it would have addressed such possibility right at the start of drafting. For example, if you want o leave a bequest (a gift in the Will) to your sister, an attorney drafting this Will should immediately ask whether the gift will go to your sister’s children or spouse if she were to die before you. Therefore, if your sister dies while you are still living, the Will does not have to be changed (unless your change your mind as to who should get her gift ).

  • What is a Trust:

    A trust is an entity formed by trust agreement between Grantor (settlor) and trustee. Grantor (also called settlor sometimes) is a person who creates the trust. Please note that the Internal Revenue Code has many complicated rules concerning who is treated as grantor with respect to the trust and, therefore, it is best to contact an income tax specialist or an attorney who can carefully analyze your situation and advise you accordingly.

    A trustee is a person who holds the property in trust for the benefit of beneficiaries listed in the trust agreement. A trustee does not own the property for his own benefit (unless he or she is a beneficiary of the trust as well as trustee). Trustees are held accountable for everything that they do with respect to the trust. They owe beneficiaries a duty of loyalty and care. They can never act is self-interest and must always think about the beneficiaries. Trustees must carefully observe the rules of the trust agreement and of the state laws concerning fiduciary roles and responsibilities. What’s important to understand is that when you take on a fiduciary role, i.e. become a trustee or executor, your personal subjective judgment should not be your priority. You have to carefully adhere to what the trust agreement requires of you and you must follow the state law. If you are not sure on how to proceed, hire an attorney. Sometimes, you can petition the court for guidance but the courts are really hesitant about substituting their own judgement for that of the trustee.

    Therefore, a trust is an entity that holds res, property or assets of any sort, and exists under the state law and under the “law” of the trust agreement for the benefit of its beneficiaries for as long as the agreement specifies and the state law allows. Trusts can be funded with any property: paintings, real estate, stock, cash. Trusts can exist for any purposes as long as it is not against public policy and as long as it does not promote/requires illegal actions. Trusts can benefit individuals, groups of individuals, charities, families, related or unrelated parties, and pets.

    A special type of trusts, called revocable or living trusts, are trusts created by the person during his or her life with him or her as trustee for his or her benefit during lifetime. These trusts are most often used to substitute Will in order to avoid probate (a process of admitting one’s Will to the court as valid Will) and to preserve the privacy of the decedent and his or her estate.

  • What is a health care proxy:

    A health care proxy is a document that everyone should have. It designates a person of your choosing as your agent to make health-related decisions for your in case you are incapable of doing so yourself. It should name the primary agent and also appoint a successor agent. Health care proxy should contain the most recent HIPAA authorization language to allow any medical institution/organization to release your confidential medical information to your agent.
  • What is a power of attorney:

    A power of attorney is a document which appoints a person of your choosing (sometimes, more than one person) to act on your behalf with respect to you financial and business affairs. In New York, a power of attorney does not appoint a person to make health care decisions for you. You must have a separate health care proxy designation for that purposes. A power of attorney is a very powerful tool in estate planning. Be careful with powers of attorney and your designations. You have to trust your attorney-in-fact (a person who is designated as your agent under your power of attorney). New York law requires a separate Statutory Gift Rider to a power of attorney, which is a stand-alone document authorizing your attorney in fact to make gifts using your property in excess of $500. The Statutory Gifts Rider must be witnessed. You may be as broad as narrow in your grant of powers to your attorney in fact. Powers of attorney usually have a list of powers that you may grant to any person as you see fit. Therefore, a careful review of all the powers is required before “all” are granted automatically.

  • What is a living Will:

    A living Will, also called Last Directive., is a document in which you express your wishes not to be kept alive using artificial means, such as ventilator and feeding tubes, if you are proclaimed terminally ill or brain dead. Such choice is very personal but if you feel strongly about this decision, you must have a Living Will that clearly expresses your wishes with respect to artificial, means of life support, feeding, hydration, and pain medication.

  • What is designation of agent to control disposition of remains:

    New York has a document in which you may leave specific instructions concerning disposition of your remains and appoint an agent to control such disposition. This person will be in charge of your funeral and burial. If you have strong feeling and preferences concerning your funeral and burial or you want to be cremated, do not leave these instructions in your Will. Most of the time, the Will is opened and read after your funeral. Therefore, have your attorney will out the designation and leave specific instructions for your agent. Also, if you know that members of your family may argue because of your burial preferences, it is important to leave a person in charge of these decisions so that they can be made quickly and the funeral homes/director takes instructions from one designated person.