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7 COMMON MISCONCEPTIONS REGARDING THE ESTATE LAW

17
Oct

By Jason Stern

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As a NY estate lawyer practicing in Forest Hills, Queens for many years, there is a common thread of misconceptions clients have about probate and the estate law. Although the NY estate law may often seem deceivingly straightforward to lawyers and clients alike, the NY estate law is anything but simple. Any experienced NY estate lawyer will tell you this area of law is governed by a complex labyrinth of convoluted statutes and rules. To try and better understand these rules and the common misconceptions people have regarding them, I have created a list of 7 common misconceptions about the NY estate law.

Misconception 1 : I DO NOT NEED A WILL BECAUSE I WILL AUTOMATICALLY INHERIT EVERYTHING WHEN MY SPOUSE DIES

NOT TRUE. Almost every experienced NY estate lawyer wishes he or she had a dollar for every time a client whose spouse just passed away without a will told them this. Intuitively people automatically assume that if your spouse passes without a will you stand to inherit their entire estate. Unfortunately the NY estate law does not work this way.

When we pass without a will it is called intestacy and is governed by the intestacy laws of the State of New York. As such, the surviving spouse is entitled to their intestate share of their spouse’s estate, the first $50,000 plus one half of the remaining portion of the estate. The remaining half of the intestate estate is shared among any and all surviving children, regardless of age or proximity to the decedent. You can see how this can be problematic especially if the children are minors and or do not get along. For this reason alone it is imperative that every single married person with children have an attorney drafted will in NY.

Misconception 2 : A WILL IS A SELF-AUTHENTICATING DOCUMENT

A WILL IS NOT A SELF-AUTHENTICATING DOCUMENT. A self-authenticating document is something that automatically becomes legally binding when signed. For instance a change of beneficiary form on a transfer on death account may be legally binding when signed. A cell phone contract may be legally binding when signed. However a will is much, much different.

Any experienced NY estate lawyer will tell you a will is the most powerful document a person can create. A will can do amazing things when properly executed. However for a will to be legally binding a will must be properly executed and authenticated as a reliable document before it can be admitted to the Court for probate when someone passes. Many times people go online to create their own will or to inexperienced lawyers who are not well versed in the drafting and execution of wills. Wills such as these are denied probate by the Courts.

This is bad, very, very bad and can have horrific consequences for the beneficiaries of the purported instrument. As such it is vital to spend the couple hundred dollars to have an experienced NY estate lawyer who knows what he or she is doing draft your will. With nearly 45 years of combined NY estate law experience successfully contesting wills, trusts and deed transfers in NY, I can tell you there is a strong presumption that a will is valid when properly executed and supervised by a NY estate lawyer.

A will is much more than the words on the paper it is written on. In addition to the drafting of the document itself, you are actually paying for the ancient execution ceremony that accompanies the will’s creation. This is money well spent and I am not just saying this because I am a NY estate lawyer.

Misconception 3 : THE PROBATE PROCESS IS COSTLY

I would argue that the probate process is the most efficient way to distribute wealth the law allows. Considering the estate law currently allows a married couple to transfer up to $10,500,000.00 of estate assets free of any and all Federal Estate Tax liability, $10,680,000.00 in 2014, I would say probate is a bargain. To put this in prospective, only up until recently did the law permit transfers of this size to be made without any Federal Estate Tax liability. For many, many years, a Federal Estate Tax of approximately 50% kicked in for any and all estate assets in excess of $600,000.00. As such, you can see how a simple will can transfer $10,500,000.00 free of any and all estate tax at the Federal level.

Additionally a will often costs a few hundred dollars as opposed to more complicated trusts that require more substantial outlays of money to create them. For many years people would create costly trusts during their lifetime for the sole purpose of avoiding the onerous estate tax at the Federal level. As you can see above, this exorbitant expenditure is no longer necessary.

Misconception 4 : PLACING ASSETS IN A TRUST WILL SAVE MY HEIRS MONEY

WRONG. Putting assets in a trust will not save your heirs money and will probably cost them money, a lot of money. Once assets are placed in a trust they are technically no longer in your possession for estate tax purposes. However these assets no longer benefit from the advantages that accompany assets within your estate, mainly the stepped up basis. The stepped up basis is arguably the greatest estate tax weapon a NY estate lawyer has in their arsenal. It allows any and all equities, stocks and investments, and real property deemed the domicile of the deceased person, avoid any and all capital gains tax on the appreciation of the asset throughout that person’s lifetime. (Feel free to read more about stepped up basis on our September 18, 2013 blog by clicking this link).

Assets in irrevocable trusts are not afforded the stepped up basis. Although irrevocable trusts can be a useful tool for elder care planning to get a loved one onto Medicaid, the loss of the stepped up basis makes it a very costly strategy in other instances.

Misconception 5 : A WILL IS EXPENSIVE

A simple will is all most of us need and should not cost more than a few hundred dollars at your NY estate lawyer’s office. Considering this simple document can save your heirs immeasurable aggravation and expense in the future, there is really no reason for any of us not to have a simple will. Of course there are more complicated wills available, which can implement fairly advanced estate planning strategies and estate tax avoidance but for most of us a simple will is fine.

Misconception 6 : ALL OF MY ASSETS ARE IN MY ESTATE

All of your assets may not be in your estate. For example an estate asset is an asset that passes into your estate without any beneficiary on it. If you own real property with your spouse, you probably own it with rights of survivorship. Anytime a bank account has a joint account holder with rights of survivorship or a beneficiary, it is not considered an estate asset. Assets with rights of survivorship pass to your beneficiaries or joint tenants as they are called, by operation of law upon your passing. Meaning these assets automatically transfer to your beneficiaries and or joint account holders upon the issuance of a death certificate. Nothing more needs to be done.

However any and all real property and assets not held jointly, you may want to check your deeds to determine the status of your tenancy, are deemed estate assets and pass through your estate. If you have a will these assets, not held jointly, pass through probate. Otherwise if you do not have a will, these assets not held jointly, pass through intestacy pursuant to the intestacy laws of the State of New York.

Misconception 7 : A TRUST CAN ONLY BE CREATED DURING YOUR LIFETIME

Not true. In fact very often the best and most economical way of creating a trust is in your will. When a trust is created in a will it is called a Testamentary Trust and becomes effective only on the date of your passing. This is a great way of maintaining complete control of assets both during the course of your life and after.

Our NY estate lawyers have more than 45 years of combined NY estate law experience creating these types of testamentary trusts. For instance, if someone has $3,000,000.00 in property and cash in their estate and a wife who has an online shopping addiction, our NY estate lawyers will form a testamentary trust for them.

The testamentary trust will allow the spouse to live off the income from the assets in the trust without being able to spend down the principle. As such this testamentary trust will ensure this surviving spouse will be well cared for and have plenty of money without being able to blow the principle.

If you or a loved one are thinking about creating a will, trust or some other estate plan, please feel free to speak with a NY estate lawyer at the Law Offices of Jason W. Stern & Associates for a free consultation at (718) 261-2444. Our NY estate lawyers have nearly 45 years of combined NY estate law experience drafting and probating the wills for families like yours in the counties of Queens, New York, Kings, Bronx, Westchester, Rockland, Nassau, Orange and Dutchess.