Legal News & Views

Introduction to Estate Planning¹
by Kathy Rosenthal , Esq. c 2006

Estate planning requires taking control, making informed decisions and then implementing those decisions. Everyone can do it and should do it - whether your estate is modest or complex.

First, you need information about inheritance laws and tax laws, then you need to list and assess your own assets, family members, their needs and your planning goals. This should be done with a competent attorney, experienced in estate planning (and, if appropriate, elder law and Medicaid planning).

Estate planning can be very complicated; it is certainly very fact-specific, and the tax and property laws change regularly - so the information given here is general and meant to be introductory in nature only. Even though this outline is extremely detailed and full of information, it still only barely scratches the surface of information needed to manage and coordinate the laws of gifting during lifetime and at death, charitable gifting, insurance, retirement planning, banking, domestic relations and last, but never least, taxes (income, gift and estate taxes) all of which must be considered simultaneously.

This is the first in a series of articles which Rosenthal & Markowitz makes available because you will be a better advocate for yourself when you are well-informed. The focus of this introductory article is how property passes at death.

At death, property passes one of three ways: (1) by the laws of intestate succession (when decedent dies without a valid Will), (2) by Will, or (3) by operation of law.

Property which decedent (the deceased person) owns solely in her own name passes either (i) by Will (if decedent had a valid Will) or (ii) by intestacy (if decedent does not have a valid Will).

Property which passes by Will is subject to a probate proceeding². Property which passes by intestacy is subject to an administration proceeding³.

Property which decedent owns jointly, or which names a beneficiary, or which is owned by a lifetime trust⁴, passes directly to the named beneficiary (of the account or the trust) or passes directly to the joint owner passes by operation of law. These assets are sometimes called “ non-testamentary ” or “ Will substitutes ” because they pass property at death, but substitute for a Will. Property passing by operation of law does not pass under decedent ’ s Will; it is not even effected by decedent ’ s Will.

Some people believe that owning property jointly will solve all probate, Medicaid and creditor problems. Unfortunately, that is not necessarily legally correct and owing property jointly can have disastrous effects during lifetime.

Before rushing off to create a joint account, or put your niece ’ s name “ on ” your condo deed to avoid probate or administration, it is necessary to understand the nature of joint ownership and the legal ramifications. Will substitutes have ownership and tax ramifications for the creator both during lifetime and at her death - not all of which may be appropriate for each person.

If you “ put ” someone else's name “ on ” a bank or stock account, you are presumed to have made a gift of one half to the other person. Here are just a few of the problems which may arise.

You may not be able to close the account or take back your money whenever you want to. The other person may need to consent to withdrawals and to closing the account.

Half of your money may be subject to the creditors of the other person.

All of the money held in the joint account will be deemed to belong to you anyway if you apply for Medicaid.

Under certain circumstances, you may be liable for a gift tax on the half you inadvertently gave to the other person, and the gift may incur a penalty for Medicaid planning purposes.

When you die, your creditors may still be able to reach half, if not all, of the amount in the account anyway.

When you die, the full amount in the account is taxes in your estate (although it may be subject to the marital deduction if the other person is your spouse).

When you die, if the other person died first, the account won ’ t pass by operation of law. If you haven ’ t written a Will because you were sure you ’ d outlive that person, then you may need an administration proceeding and your property will pass under the laws of the State of New York, not necessarily to the person you ’ d choose.

We hope this has been helpful. If any of our attorneys can be of additional assistance, please do not hesitate to call, 914.347.1292. Home consultations may be available upon request.

1 The information provided in this article is not intended to be specific legal advice or to be followed without individualized, professional guidance and assistance. All information given pertains only to New York State law, unless the article specifically states otherwise. The information given is only current as of the date it is written. Despite our best efforts to update articles as the laws change, it is possible that some of the information might not be current. Therefore, please note the date on all articles, and watch for others which are more current.

2 A probate proceeding is a proceeding which occurs in the Surrogate ’ s Court in the County in which decedent lived at the time of her death. The purpose of the proceeding is for the Court to approve the Will (to get the Will admitted to probate) and for the Court to appoint an Executor whose job is to settle up the estate and make distribution according to the terms of the Will.

3 An administration proceeding is also a proceeding in Surrogate ’ s Court. The purpose of the proceeding is to establish that decedent did not have a Will and for the Court to appoint an Administrator whose job is to settle up the estate and make distribution according to the laws of the State of New York.

4 A lifetime trust is a trust created by a creator and funded during one ’ s lifetime.

 

REVISED: September 5, 2005

Rosenthal & Markowitz, LLP | 45 Knollwood Road | Elmsford, NY 10523
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