Dec 6, 2021 What Is an Estate Plan?

When people think of an estate plan, many first think of a Last Will and Testament, or Will. The Will is truly the hallmark document of any estate plan. This is a document that allows a testator (or, a person who has created a Will), to designate beneficiaries who will inherit property such as cash, real estate, personal property, and other assets such as bank and brokerage accounts, from their estate.

Further, a Will allows the testator to appoint a person named by the testator to manage the administration of the estate after the testator dies, known as an executor (man) or executrix (woman). Importantly, a Will can also be a means for the testator to indicate his/her desires regarding the appointment of a guardian for a minor child.

The estate of a person who passes away without a Will is distributed in accordance with a pre-determined set of rules based on State law – a process known as intestacy. Essentially, if a person dies without setting the rules for the distribution of their property in a Will, the Court will set the rules by itself, as determined by state statute. In New York, the relevant statute is Article 4 in the Estate Powers and Trusts Law (EPTL).

Other Documents in an Estate Plan

A full estate plan is much more than simply having a Will. Comprehensive estate planning includes advance directives, and  involves at least three separate documents: (1) the Will, (2) a Financial Power of Attorney, and (3) a Medical Power of Attorney, also commonly referred to as a Health Care Proxy and Living Will. Moreover, some more complex estate plans may include trust instruments, which will be discussed in further detail below.

The Financial Power of Attorney (“POA”) allows a person, called the principal, to appoint another individual, known as an agent, to control, and make decisions concerning, their finances and property. In the case of a durable power of attorney, the agent’s power is effective immediately upon the execution of the POA document. 

A Health Care Proxy & Living Will allows an agent or proxy to make medical decisions only if the principal is legally incapacitated. Legal incapacity is a mental or physical state in which a person (the principal) is unable to make rational and responsible medical decisions for themselves, as determined by a physician.

As the name suggests, a Financial Power of Attorney gives the agent the power to make financial decisions on behalf of the principal. These documents can be drafted to give an agent either very broad or limited control over the principal’s assets. Though by no means an exhaustive list, some common examples of powers that might be granted to an agent are:

• Engagement in banking transactions, such as cashing, or writing a check, drawn on the principal’s account;
• Taking out a loan in the name of the principal;
• Payment of the principal’s taxes;
• Making gifts from the principal’s assets;
• Trust planning;
• Estate planning;
• Medicaid planning;
• Selling  real estate owned by the principal; or
• Changing a beneficiary designation on a life insurance policy.

A Health Care Proxy & Living Will affords an agent the ability to make medical decisions on behalf of an incapacitated person based on the principal’s specific instructions. These instructions might include the incapacitated person’s preferences about whether to withhold or administer:

• Life sustaining medical procedures such as dialysis, artificial respiration, or gastrostomy (feeding tube insertion);
• Hydration;
• Pain relief medication; or
• Antibiotics.

What Does a Trust Do?

A trust is an instrument that allows the creator of the trust, or trust grantor or settlor, to effectively place their assets into a fund to be managed or administered by another person, known as the Trustee.

The Trustee will be guided by specific instructions that the settlor stipulates in the trust document. Unlike a Will, where distributions of a person’s assets are made all at once upon a person’s death, a trust can control those assets long after the death of the settlor. The settlor has the option of making distributions at specific intervals of time or can base distributions on the occurrence of specific conditions.  For example, a settlor may direct that a Trustee make distributions to a beneficiary when they reach a certain age, or when they achieve certain milestones, like graduating from college, obtaining employment, or getting married.

The rules that govern the way Trust assets are distributed to the beneficiary will be set forth clearly in the document. Just like a contract, the Trustee must follow these rules. The Trustee can be given inflexible directions or can be endowed with great discretion, depending on the settlor’s wishes.

Many different types of assets can be placed into trusts. Different types of trust instruments can be used, depending on the types of assets with which the settlor intends to fund the trust, and the purpose for which the trust is used. Trusts are often funded with:

• Real property such as a person’s principal residence or investment property;
• Stocks, bonds, and mutual funds;
• Life insurance policies, and annuities;
• IRA or retirement accounts;
• Cash; and
• Artwork.

Trusts are often formed for four distinct purposes:

• To take advantage of federal and state tax exemptions, such as those concerning estate tax, gift tax, and state inheritance tax;
• To protect the trust assets from the expense and delays incident to estate probate proceedings;
• To provide asset protection in the event that long term care is needed, and it is beneficial to qualify for Medicaid; and
• So that a trust settlor can control how their assets are distributed long after they pass away to help preserve and manage assets earmarked for beneficiaries who the settlor feels are not ready to manage the trust assets responsibly on their own.

What Is a Medicaid Asset Protection Trust (MAPT)?

A Medicaid Asset Protection Trust (MAPT) is a type of trust into which a settlor places assets to protect them from creditors and to preserve the settlor’s eligibility for publicly funded benefits like long term home healthcare in the New York Medicaid program. To qualify for Medicaid in NY in 2021, an eligible applicant’s financial resources (Medicaid- countable assets) cannot exceed $15,900 for an individual, and $23,400 for a couple.

By placing assets into an MAPT, an elderly, disabled, or blind person no longer owns those assets and can qualify to receive government paid assistance while the MAPT trustee manages the trust assets, and can provide financial support to the MAPT beneficiary according to the terms of the settlor’s MAPT document.

As an additional benefit, the assets in such a trust are protected from the expense and inconvenience of probate proceedings when the assets are ultimately distributed to the beneficiaries.

Is There a Way to Plan for Funeral Arrangements?

Some people might include preferences concerning funeral arrangements within their Will. Others will create a separate document that is commonly referred to as a Disposition of Final Remains. In either case, these instructions detail how a person wants their body to be treated after they pass away. Likewise, a Will will often set out preferences regarding ceremonial arrangements.

A person may also plan for eventual funeral expenses by creating a prepaid funeral account. These prepaid accounts are set up with a funeral director to cover the costs associated with a person’s funeral that will be immediately available upon the person’s death.

An Estate and Trust Planning Attorney’s Services Are Valuable

Consulting with an experienced estate and trust planning attorney is the best first step a person can take when considering ways to preserve assets, minimize federal and state income and estate tax exposure, maximize eligibility for public benefits, and securely distribute wealth to heirs without the delay and expense involved in a probate court (surrogate) proceeding.

Contact Ely J. Rosenzveig & Associates to learn more about how our dedicated attorneys can assist your family with its unique needs. Call +1 (914) 816-2900 or email us to schedule your consultation today.