What Exactly Is Estate Planning?

 

What Exactly Is Estate Planning?

 

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Most people accumulate various assets over their lifetime. Assets are comprised of investment vehicles such as investment accounts, which may contain stocks and bonds and mutual funds and other types of financial assets. Other assets include real estates such as their personal house, a summer home, and rental properties or buildings. Sometimes, an asset is just an open lot of land purchased as an investment. Assets also include personal items, automobiles, watches, jewelry, paintings, furniture, other things that they keep in their house. It’s all very personal to the individual and everybody’s estate is unique. In addition, many people have accumulated retirement assets such as IRAs, 401(k)s, and annuities from their jobs and other types of retirement assets.

An estate is either an individual estate or an estate of a couple, which would consist of all the assets that a husband and a wife have accumulated together over their lifetime and marriage. Also, most people have some form of income including earnings from their jobs; income generated from assets such as investment income or rental income; and social security or retirement income.

The purpose of estate planning is to organize an individual or a couple’s assets in such a way that they are provided a variety of different benefits. Some benefits include protection from creditors; accessing government benefits to pay for medical costs to avoid exhausting personal assets; protection against divorces, either their own divorce or protection against the divorces of their adult children by protecting assets they intend to pass down. Estate planning can also provide protection from creditors of their children or spendthrift tendencies of their children.

Another aspect of estate planning is to create a proper financial structure for income to ensure that there is enough income for as long as they live by combining their assets and income in a certain fashion. This involves protecting against creditors, medical spend down, and medical costs by arranging the assets in such a way that the estate plan provides the maximum protection and the maximum flow of income given the individual or couple’s circumstances. Everybody’s estate plan is going to be different and it’s going to be different based upon their goals, their concerns, their risk factors, their personal desires and how much control they’re willing to give up. Often, later in their life, people are going to be willing to give up more control than earlier in life when people are willing to give up less control. Basically, the more control they give up the more protected the assets will be for themselves, their future, as well as for passing on assets to their children. By giving up control, in essence, they no longer have unfettered access to their assets.

Basically, estate planning is the organization of assets as well as income to maximize benefits.

What Happens When Someone Dies Without an Estate Plan In New York?

A will is definitely one of the major components of a proper estate plan and if somebody dies with a will, then the will is going to include exactly where they want their assets to go. The problem of having a will without a more elaborate estate plan is having to go through probate. Probate is the legal process involving the Surrogate’s Court which essentially oversees the entire collection and distribution of assets including the transfer of the assets to the designated parties. Another component of a proper estate plan is to have some form of a trust to avoid probate. A trust is either a revocable or an irrevocable trust depending on the individual’s needs and desires at the time the trust is created. Assets that are in the trust do not go through probate, so if all the major assets are in one or more trusts, then the estate will not go through probate and the will is used just in case something falls through the cracks.

On the other hand, if somebody dies without some form of an estate plan or some form of will, then it goes through probate and their assets are distributed according to what’s known as the laws of intestacy. Intestacy means that a person dies without a will and they have assets in their name, meaning not in a trust. In that case, the law defines exactly who gets those assets and they’re distributed in a certain priority. The major priority would be to spouse and/or children depending on whether there is a spouse or not and whether there are children or not. Next, if there is no spouse or children, the assets would go to siblings; and if there are no siblings, then it will go to their parents. If they don’t have any parents, then it’ll move to their aunts and uncles; and then out to cousins. You can picture it almost as a mushroom. It goes down and then after it goes down, if there is nobody to go down to, then it starts to go up and then it spreads out. So, without an estate plan and will, the law is going to take over and will find exactly where the individual’s assets go. If they have a will, it’ll still go through probate but the will decides where the assets go, whether it’s the same that it would be as intestacy or they want assets to be distributed any other way including giving it all to charity or having some form of a testamentary trust to take care of a pet or things of that nature.

Because individuals do have complete unfettered discretion to choose where their assets will go, it is important to have a proper estate plan. Often, clients want to avoid probate altogether, so they will create one or more trusts, either revocable or irrevocable, which will move their assets into those trusts during their lifetime so that probate is avoided altogether, and the trust document is just as good as a will in terms of defining exactly where their assets are going to be distributed. This provides even greater protection in the sense that if you go through a will, for the most part, assets are going to be distributed outright. But if you go through a trust, then the assets can be completely controlled and be given out at certain ages or distributed as income and given out throughout the lifetime of your beneficiaries with the principal reserved for retirements. Any number of schemes can be deployed within a trust that will allow an even greater level of protection against future beneficiary divorces, creditor, or spendthrift issues.

For more information on Estate Planning in New York, Long Island, Nassau or Suffolk County, a FREE phone consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 806-0762 today.

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