Inheritance

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CAUTION ALERT
INHERITANCE AND ESTATE PLANNING ARE COMPLEX SUBJECTS, DIFFICULT TO GENERALIZE FOR WEB READING. EACH CASE IS UNIQUE AND SHOULD BE DISCUSSED WITH COMPETENT PROFESSIONALS.

I am often visited by clients concerned that upon their death their property will be taken over by the state. Let me dispel this common misunderstanding: no governmental authority will take the property from your heirs (beneficiaries) even if you do not have a will. This generally happens when you don’t have a will, no one comes to claim the property and no heir is located.

This being said, I think that there are important advantages to having a will, even if you don’t have many valuables. Below is some information to give you “food for thought.”

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THE SMALL ESTATE

In New York, if the decedent’s personal property is valued at $50,000.00 or less, you can apply to the Surrogate Court for permission to distribute the assets. This is the case whether the decedent left a will or died intestate. The process is very simple and starts with the filing of an “Affidavit of Voluntary Administration” (small estate affidavit). You can find more information at:

http://www.nycourts.gov/courthelp/diy/smallEstate.html

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INTESTACY: DEATH WITHOUT A WILL

1. If you have minor children and the natural parent (or custodial parent or guardian) predeceases you or dies in an accident with you, the court must appoint a guardian and award custody. This person may be someone you don’t know, or whom you would want to take care of your children. By contrast, in a will you can determine (subject to court approval) who you want to have guardianship of your children.

2. Your property will be distributed under the laws of intestacy, more clearly detailed below, and your property may go to persons you did not want to inherit from you.

3. When you die, you want someone responsible to manage the distribution of your assets. Without a will the court will select this person and it may not be someone you would have selected.

4. For those wealthy individuals, estate planning may be very important from a taxation point of view.

The following are the main categories of beneficiaries in New York when you die without a will:

1. Spouse and no children: spouse takes all;

2. Spouse and one or more children: spouse gets the first $50,000.00, plus one half of the balance. The other half goes to the children;

3. Child (or children) and no spouse: child or children;

4. No spouse and no child or children: the parents. If only one parent survives, that parent gets all;

5. No spouse, no children and no parents: siblings;

6. No spouse, no children, no parents and no siblings: grandparents.

The chain of heirs goes on and on. In addition, the way that some heirs inherit may be complex if one of the beneficiaries in the above categories, such as children, siblings, etc. has predeceased the decedent.

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ADMINISTRATION

Any person interested in your property may commence a proceeding of administration in Surrogate Court. Generally, the person who stands to benefit the most will be the applicant for an administration. The process starts with the filing of a petition requesting that the court appoint a person, the petitioner or someone else, administrator of the estate of the decedent. This administrator will be responsible to gather all the property owned by the decedent in his/her name, whether tangible, such as bank accounts, or intangible, such as real property.

This proceeding can be lengthy and costly, as it may take months and even years to settle the entire estate.

In administration proceedings, the court must follow the laws of intestacy and there may be beneficiaries who are not happy with what they are getting. For example, the one son/daughter who took care of the ailing parent may end up with the same share as the one who hardly visited the parent.

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PUBLIC ADMINISTRATOR

The office of the public administrator is appointed administrator in cases where a person dies without known beneficiaries, the beneficiaries are not in agreement as to who the administrator should be, the beneficiaries fall within certain distant categories of kinship, the beneficiary is unable or does not wish to be the administrator, or the beneficiary is required to post a bond and is unable to obtain it.

The public administrator earns a commission for his/her work, as set by law, gathers the assets, distributes same to the beneficiaries or remits the proceeds to the State where they may be claimed in the future by a qualified beneficiary.

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WILL AND TESTAMENT

Property to be included in a will is property that is under your name only. Property that you already own with another person, as tenants by the entirety (spouses) or joint tenants with right of survivorship, passes automatically to the survivor outside the will, even if you have included it to pass to someone else in the will. For example, you own a house with your brother as joint tenants with right of survivorship, or with your spouse, as tenants by the entirety. You write in your will that you want your ownership in the house to go to your son. When you pass away, your brother, or your spouse, as the case may be, becomes full owner of the house and your son gets no part of that property. The same principle would apply to bank accounts or beneficiaries named in a life insurance policy. If you want someone else to inherit any of these, you must change the form of title ownership or beneficiary prior to your death.

In a will you can select your beneficiaries. You can leave everyone out, except your surviving spouse. Unless your spouse is disqualified from inheriting, or has waived the right to inherit, the surviving spouse is entitled to the greater of:

– one third of the net estate and testamentary substitutes or
– $50,000.00.

Other than the surviving spouse, you can leave your property to whomever you want in the percentages you want, to an entity, whether business or non-profit, to charity, to a trust formed for whatever legal purpose you want.

You should designate an executor, or person that will manage your estate upon your death and distribute the assets according to your wishes. You should decide what person or persons you want to have guardianship of your minor children, if any. You should decide how you want your children to be supported during their infancy and how the assets in your estate are to be distributed to them. You may need to create a trust for the benefit of the children. In that case, you should name a trustee, a person of your confidence, who will manage the assets of the trust according to your wishes. The trustee does not have to be the guardian or the executor, although it could be. You can state that you don’t want the executor or trustee, if applicable, to be compensated (so long as this is acceptable to them) and that they do not have to post a bond. If your net estate is valued at more than the excludable amounts under the tax law (both federal and state), you should consider some estate planning before you write a will. This may allow you to maximize the amount of money that will be legally inherited by your beneficiaries.

You should make a list of all the property you own, even belongings that may not have significant money value, but that may have some emotional value to you and other members of your family. Then you should decide how you want that property to be distributed upon your death.

Think of someone you trust and who is either your age or younger to appoint as the executor(trix) of your will. Just in case that person predeceases you or is unable to serve, choose a substitute executor(trix) to name in the will. If you decide to create a trust, you should consider how that trust is to be administered and choose someone to be appointed trustee and, just as in the case of an executor(trix), name a substitute trustee.

If you have minor children, decide how your property is to be administered and when the children will be entitled to receive the property directly. For example: money goes into the trust, the interest earned from the trust to be used for the support of the children. The principal to be reserved for emergencies and their education. Whatever is left when the youngest of the children reaches a certain age (let’s say 21), to be distributed in equal shares. Most important in the case of minor children is the selection of the person who will have guardianship of them and the person who will be the trustee, if different from the guardian. Otherwise, the court may appoint someone whom you may not necessarily have wanted to be appointed guardian or trustee, or a totally unrelated party who may not be the best for the caring of your children.

Make sure that you talk to the person(s) you want to serve as executors, guardians or trustees before you appoint them in your will. Relatives and friends may not want the responsibility, especially when it comes to taking care of small children, no matter how much they may love your children.

Additionally, refresh your will as circumstances change. For example, you may decide on a guardian. Subsequently, that guardian may get married and have children after you write your will. You may not like or trust the spouse or you may feel that the guardian has his or her hands full with his/her own children. Or maybe the spouse does not want the responsibility of taking care of your children.

Wills can be changed as often as you want. It may be costly, but there is no point in having a will when you have changed your mind about its contents.

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CONTESTED AND UNCONTESTED PROCEEDINGS

There are many reasons for a contested proceeding after your death, whether the proceeding is an administration or a probate of your will.

One of the most notable reasons is a disagreement between possible beneficiaries. If there is no will, an administration may become contested because of the disqualification of distributees, or a disagreement between them as to who should serve as the administrator and/or who is being left out, or about who gets what piece of the pie.

In probate of wills, there may be issues regarding the validity of the will, which could be the validity of signatures, witnesses, or the mental competency of the testator. There may also be issues about the intent of the testator regarding some vague testamentary dispositions, or the right of some beneficiaries to receive any distributions. Or what about an intent to leave everything to beneficiaries in equal shares based on the value of assets at the time the will is signed. At the time of death the assets have a substantially different value. Will you be happy if your share is worth much less than that of other beneficiaries? Do you have a claim? Can you contest the disposition?

Contested proceedings are very complex. It is important to consider them before commencing a proceeding so that proactive actions can be taken that may result in savings for all parties concerned.

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ESTATE TAXES

There are estate taxes at both, the Federal and New York State levels.

Estate taxes, just as any other taxes, are quite complex and beyond the scope of this writing. But the following may be of some help.

Your entire estate may be below the threshold amount for the imposition of taxes, whether at the Federal or State level. It may make some people feel better about knowing that most likely they will not have to pay any taxes, as many of us don’t have to worry about receiving such a large inheritance (I wish someone would leave me so much money that I had to worry about how much I may lose in estate taxes!!!). However, there are a lot of people who may have larger estates than they realize. Between money in the bank, stocks, bonds, real property holdings, jewelry, expensive furniture, paintings, etc. you may have a few million dollars under your name. In that case, it may be worthwhile to think of estate planning now.

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MEDICAID AND YOUR PROPERTY

Tricky, complex, careful. Can you find a way to dispose of your property without losing its use or income, and yet be entitled to Medicaid? Tricky question.

What can you do to protect your property in case that you need long term care and don’t have long term care insurance? Complex question.

Is there any estate planning that will allow you to protect your property while at the same time allow you to receive Medicaid for long term care if you need it? The answer is maybe, but you must be careful in planning and you must do it in advance. New York has a “look back” period of five years, which means that you may be facing a penalty period during which you may be ineligible for government aid. It means that if you transfer assets during the five years before applying for nursing home care, in essence what you gave away during that period must be given back. However, there are some exceptions to this rule and proper, competent planning is much recommended.