National Estate Planning Month

October 2022 – October is National Estate Planning Month and October 17 to 23, 2022 is National Estate Planning week, which started in 2008 when the House of Representatives “estimated that over 120,000,000 Americans do not have up-to-date estate plans to protect themselves or their families in the event of sickness, accidents, or un-timely death” and encouraged “the distribution of estate planning information by professionals to all Americans.”  Despite this 14-year effort to educate Americans about the importance of estate planning, more recent surveys estimate that about two-thirds of Americans still have no estate plan.  Additionally, with the Covid-19 pandemic claiming over a million American lives in just over two years, it is more important than ever to have an estate plan in place.

Many people find reasons to delay addressing their estate planning for reasons such as a lack of assets, lack of knowledge, lack or time or the belief that the process is too expensive.  In the event that a person should pass away without a valid Last Will and Testament in place, however, New York State intestacy laws will dictate the distribution of a decedent’s assets, which may not match what such person’s wishes would be for the distribution of his or her estate.  Having an estate plan in place for distributing assets and memorializing one’s wishes can thus provide a needed relief for a decedent’s loved ones in times of uncertainty and stress.

For the majority of people, preparing an estate plan includes having (at a minimum) a Last Will and Testament, Living Will/Healthcare Proxy, and Power of Attorney in place, all of which should be prepared by legal professionals and are summarized as follows:

1.  Last Will and Testament – The most important estate planning document is the Last Will and Testament. A will directs who is to receive different assets, who is to act as the fiduciary to oversee the administration of the estate and to distribute the assets, and sets forth the parameters and guidance for the fiduciary in administering the estate. A will is a document that only becomes effective upon a person’s death and can be changed by that person at any time during their lifetime as long as the person has the capacity to understand their decisions and actions.

Many people believe that having a will prepared is unnecessary while they are still young, but a will is especially important for parents with young children as it allows them to state their wishes regarding who would manage their assets and care for their children in the event of their death.  While no one wants to think about these issues, addressing them now can provide parents with the comfort of knowing that their wishes will be known in the event of their death and can alleviate some of the stress their survivors might encounter had there not been an estate plan in place.

As people age and their family and wealth grows, protecting their assets may become increasingly important.  In addition to ensuring that assets are passed according to one’s wishes, a Last Will and Testament is an important component of tax planning. With the current federal estate tax exemption due to end in 2025, the maximum amount of assets that will be free of estate tax may decrease, and a Last Will and Testament can provide for ways to minimize or avoid such taxes.  In addition to contemplating tax changes in a Last Will and Testament, individuals in high tax brackets may look to other options such as creating trusts and gifting to ensure that their families are protected from a large tax bill upon their death.

Finally, with so much of our daily activities now being conducted over the internet, a Last Will and Testament can also specifically provide for a decedent’s fiduciary to be able to access such decedent’s online information, such as bank accounts, investment accounts, credit cards, and smartphones.

2.  Living Will/Health Care Proxy – A living will and health care proxy provides guidance to family and medical doctors in the event of an emergency where patients are unable to make decisions regarding their own care. In the event of catastrophic events or terminal illness, by appointing an agent to make healthcare decisions and setting forth firm wishes and thoughts about end-of-life care, the burden is lifted from family members who may be debating different treatment options. Highly specific situations can also be addressed, including the usage of life-saving, artificial breathing technology that is crucial to surviving an extreme Covid-19 related illness. With the changing state of medicine, these documents can also address video visits and telehealth in the event that the appointed agent is unable to meet with treatment providers in person. This document can also contain a HIPAA release to allow doctors and treatment providers to discuss medical information with the appointed agent.

3.  Power of Attorney – While a health care proxy allows an agent to make treatment-related decisions on a patient’s behalf, a power of attorney allows an agent to make certain financial and legal decisions on a living person’s (referred to as the “principal”) behalf. In the event of a loss of competency or an emergency, such as a broken arm that prevents writing, or an instance where travelling outside the state or country prevents the principal from being able to handle a financial or legal situation, an agent can step in and ensure that decisions are made in the principal’s best interests. Without a power of attorney, managing the principal’s financial and legal affairs can require the time-consuming and costly effort of going to the courts and asking to be appointed as guardian.  The New York form of Power of Attorney was revised in 2019, and some financial institutions may resist accepting old forms that they may consider outdated. The new form combines the previously separate gifting provisions with the basic form provisions.  These provisions can be especially important when it applies to qualifying for benefits, including Medicaid or financial assistance programs.

4.  Financial Planning. In addition to the three key documents discussed above, another aspect of estate planning involves the management of financial assets. Transfer-on-death and joint bank accounts with rights of survivorship will automatically transfer the assets on the death of the owner. Homes that are owned jointly with rights of survivorship will pass automatically to the surviving owner, and homes that are owned by married couples as tenancies by the entirety will pass automatically to the surviving spouse. These options can be valuable tools as they effectively transfer assets on the date of death without having to pass through a probate or administration proceeding. Having access to these assets immediately can assist surviving loved ones with funeral planning, bill paying, and other necessary expenses.

For many people, retirement accounts comprise the bulk of their assets. IRAs, Roth IRAs, 401k accounts and other retirement and pension accounts allow for the assets in such accounts to be automatically transferred to beneficiaries by allowing the owners of such accounts to specifically name beneficiaries when completing the forms relating to such accounts. It is important to keep retirement account beneficiaries up to date in order to ensure that the assets in such accounts are distributed in accordance with the account owner’s wishes, and life events such as a marriage or divorce will often require updating beneficiary designations.  Additionally, the passage of the SECURE Act in 2019 significantly changed the rules applying to retirement benefits, particularly in those cases where benefits are being left to beneficiaries other than a surviving spouse. Professional advisors can help ensure that the named beneficiaries will not be subject to any adverse consequences as a result of the passage of the SECURE Act.