Estate Planning Tools

ESTATE PLANNING TOOLS
BY
MICHAEL J. LOMBARDO, ESQ.

Every person should have an estate plan, no matter how large or small of an estate one expects to leave. There are a number of estate planning tools that should be used depending on a person's individual circumstances. Your attorney should be able to assist you with determining which estate planning tools are right for your situation.

Listed below are some estate planning tools with an explanation of how and when they should be used:

Last Will and Testament

Wills are the most common of the estate planning tools. In a Will, a person can direct who will receive the benefits of the estate. In addition, a Will is a useful tool for those with minor children who want to control who is appointed Guardian over minor children should both parents be deceased before a child turns age 18. If a person dies without a Will, the state generally directs how the assets of the estate are to be distributed. New York's direction of how assets will be divided can be summarized in the table below:

Survived By	Receive
Spouse and issue	$50,000 to spouse and ½ to the spouse and balance to the issue
Spouse and no issue	All to spouse
No spouse or issue, but parents	All to parents
No spouse, issue or parents, but issue of parents	All to issue (e.g. siblings, nieces and nephews if the parent sibling is predeceased)

Durable Power of Attorney

A Durable Power of Attorney is another tool most people should have. A Durable Power of Attorney will survive the incapacity of the person granting an agent powers. A Durable Power of Attorney does not allow an agent to make health care decisions. For that, it will be necessary to designate a health care agent through the use of a Health Care Proxy.

Changes in New York law effective December 15, 2020 make setting up a Durable Power of Attorney more complicated. For example, it is necessary that the Power of Attorney be signed (and acknowledged) before two witnesses, and that the agent sign (and acknowledge) the Power of Attorney before it becomes effective. In addition, if the agent is to be authorized to make major gifts (including those to the agent), it is necessary that a special rider to the Power of Attorney form be prepared.

Although there are limitations to the use of a Durable Power of Attorney (e.g. limiting gifts to $5,000 per person per year), and its more complex nature, the powers given are for most people sufficient and the use is more appropriate than more complex planning tools such as trusts.

Trusts

A trust is a document that can be used to pass on assets to your beneficiaries without passing through a Will. Whether your estate plan should include a trust requires an evaluation of the types of assets which will make up a part of your estate and the beneficiaries of your estate. Due to the complex nature of trusts, please review the article on trusts starting with Use of Trusts in Estate Planning-What is a Trust? which will also provide links to more articles that may be of interest.

Testamentary Substitutes

A testamentary substitute is a way of holding or titling property so that the asset passes outside of the Will. Some examples of Testamentary Substitutes are the following:

· Jointly held property.

· Naming a beneficiary (e.g. IRA account, life insurance policy)

Gifts

Making gifts during one’s lifetime is a method to reduce the size of one’s estate at the time of death. For example, each person can give up to $17,000 (starting in 2023) per person per year without filing gift tax return. For gifts in excess of $17,000 for any one person in a calendar year, a gift tax return must be filed. However, no tax is paid until the unified credit is exhausted.

CAUTION: THIS ARTICLE IS INTENDED TO PRESENT GENERAL INFORMATION AND IS NOT INTENDED TO BE A SUBSTITUTE FOR CONSULTATION WITH LEGAL COUNSEL.

IRS CIRCULAR 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be aware that any U.S. federal tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or (ii) promoting, marketing or recommending to any other person any transaction or matter addressed herein.

Last Update: January 1, 2023