Basics of Estate Planning

Basics of Estate Planning

Estate planning is a broad term for preparing your assets and your family’s needs in the event of your disability of death.  The type of planning appropriate for you will depend on the composition of your assets, your family structure and dynamic, the value of your estate, or your country of residence.

Estates Come in all Shapes and Sizes

What do you think about when you hear the term “estate” planning?  It’s possible you may be thinking that an estate exists only if there is significant wealth, multiple assets, or many family members.  But an estate exists as soon as you have any asset in your name, regardless of the value.

Smaller estates may only require very basic planning, such as a Will, Health Care Proxy and Living Will, and Power of Attorney.  A larger estate may benefit from additional estate and income tax planning, creation of trusts, or structuring the sale or distribution of a family business.

The estate planning is tailored for your needs.  Although it may seem simple enough, the process to consider who receives your assets is as unique as you are.

Take Action During Family of Financial Milestones

A good time to prepare an initial estate plan or review your existing plan is when there is a family or financial milestone in your life.  Common milestones include marriage, birth of a child, divorce, purchase of a home, retirement or increase in wealth.

Prepare a Will

Individuals sometimes ask me if they REALLY need a Will.  As a trust and estates lawyer for over 10 years, I can unequivocally say the answer is YES! 

If you die without a Will, the State (or country) of your primary residence will determine who receives your estate and in what portions.  This does not mean that the State gets your assets – only that your estate will be distributed according to their rules.  You may not like the default distribution.  A Will or Trust allows you to override the default distribution in accordance with your wishes.

Distribution without a Will (Intestacy)

Generally, spouses cannot be disinherited (unless there is a pre- or post-nuptial agreement).  Statutory intestacy rules may provide that the remainder of your Estate must be distributed to equally to your children, grandchildren, or your parents.  This may not be the best distribution for your family.

In particular, if you have minor children, it is preferable to have their share held in a trust until they reach a certain age.  Without a Will or Trust, you would be unable to do this and the child would receive the entire distribution at age 21. The risk of a full distribution at age 21 is that the child may splurge it all at one. Most parents prefer that the child’s assets be held for their benefit until a later age – 35, 40 or even longer – so that the child has access to funds at various milestones.

Additional Benefits of a Will or Trust: You call the shots!

A testamentary document, such as a Will or Trust, allows you to decide who will manage the administration of your Estate by appointing an Executor or Trustee.  By clearly identifying an individual, your family members will not have to decide who should (or shouldn’t) be in charge.

You can also provide that the Executor or Trustee may serve without filing a bond.  The default in many States requires that the Administrator file a bond, which can be costly for the estate and create delays in collecting the assets.  By avoiding a bond, your assets can be collected sooner and distributed to your beneficiaries without the expense of a bond.

If you have minor children, you can designate a preferred guardian if both parents are deceased.  During such a difficult time, your children would benefit from having the security of a designated guardian without having relatives argue over who is best suited to care for the child.

Estate Taxes

Federal law allows an individual a lifetime estate and gift tax exemption of $13,610,000 (for 2024).  New York law provides an exemption of $6,940,000.  These are historically high exemption amounts.  Although the values usually increase annually, there have been instances where these values went down. 

If your estate is near either of these values, you should consider various estate planning strategies now to reduce your estate tax exposure.  This may include creating lifetime trusts, making gifts to your heirs during life, or giving a portion to charity. 

Next Steps

A skilled estate planning attorney can provide tailored options for your assets and family structure.

Do not hesitate to contact me if you need assistance with your estate planning.