Q. WHAT IF I DO NOTHING?
A. When a New York resident dies with no plan for distributing assets at death, the person dies intestate. This means the court appoints an administrator to administer the assets and state law determines how the assets are distributed. What this means is that New York law ultimately decides who will get your assets and in what proportion, whether or not it is consistent with what you would have wanted.
Q. I OWN ASSETS JOINTLY WITH OTHER FAMILY MEMBERS. IS THIS OKAY?
A. Assets held by an individual in joint accounts or “in trust for” accounts, pass directly to the joint owner or beneficiary by operation of law. Assets with named beneficiaries such as insurance policies or retirement benefits are also left to the named beneficiary. To effectuate the direct transfer, varying paperwork such as a death certificate may be required.
In some instances, inheritances by operation of law can be very convenient. However, this method of transferring assets to heirs does not allow for special planning such as tax reduction or trusts for grandchildren or other heirs. Also assets held jointly may result in unintended inheritances.
Q. WHAT IS A LAST WILL AND TESTAMENT?
A. A last will and testament (“Will”) is a document that directs who is to inherit estate assets and in what proportion. A Will also designates the executor who is responsible for administering the estate. Considerable planning can be accomplished with a Will. For example, a Will can include tax saving trusts and trusts for the protection of disabled loved ones or those who have difficulty managing assets.
To be effective, New York law requires that a Will be submitted for probate. This is the process by which the Court validates the Will and authorizes the executor to act on behalf of the estate. Following probate, the executor proceeds with identifying, gathering and valuing the assets, paying all creditors, filing the appropriate tax returns and distributing assets according to the directions set forth in the Will.
Q. I’VE HEARD A LOT ABOUT TRUSTS. WHAT CAN THEY DO FOR ME?
A. A trust is an agreement that can provide for the management and distribution of assets during life and/or after death. Assets owned by the creator of the trust are transferred over to the trust. Trustees are appointed by the trust’s creator to manage the assets according to the directions given in the trust agreement. A trust agreement designates who will use the trust assets during the life of the creator and who will inherit the assets owned by the trust at the death of the creator or at some other specified time.
Trusts created during the lifetime of the creator do not require court involvement in the form of probate because the trustees are given the legal authority to act when the trust document is executed. Testamentary trusts are trust agreements that are part of a Will and do require that the court appoint the Trustee. The Trustee, like the Executor, must value the assets, pay creditors, file required tax returns and see to the proper distribution of assets.
Q. ARE THERE DIFFERENT TYPES OF TRUSTS?
A. There are many types of trusts, each suitable for a different purpose. Some of the most commonly used trusts are the revocable living trust, irrevocable Medicaid trust, supplemental needs trust, irrevocable life insurance trust, credit shelter or bypass trust, qualified personal residence trust, charitable remainder or annuity trust and spendthrift trust. Certain of these trusts are created during life and stand alone. Others are testamentary trusts and are created within a Will. Testamentary trusts don’t take effect until death. Trusts are complicated and must be tailored for each individual situation. A consultation with a knowledgeable attorney will help you to explore your options.